Five banks offer nominal rates of 6% on deposits; but A pays interest annually, B pays semiannually, C pays guarterly, D pays monthly, E pays daily.`
What effective annual rate does each bank pay ? If you deposit $5000 in each bank today, how much will you have at the end of 1 year ? 2 year ? What nominal rate will cause all of the banks to provide the same effective annual rate as Bank A? Suppose you don't have the $5,000, but need it at the end of 1 year. You plan to make a series of deposits- annually for A, semiannually for B, quarterly for C, monthly for D, and daily for E- with payments beginning today. How large must the payments be to each bank to accumulate the $5000 you need by the end of the year?