Problem
You are planning to transfer your savings to another bank. Your current Bank, Evergreen Bank is offering you a monthly interest rate of 3% compounded monthly. J&L Bank offers a weekly interest rate of 0.4% compounded weekly. SuperGrowth Bank offers daily interest rate of 0.07% compounded daily.
• What is the APR and EAR offered by each of the banks?
• Is it wise for you to transfer your you deposit to another bank? Which bank would earn you the highest interest income?
• Suppose after observing the EAR offered by other banks, J&L Bank decided to change the EAR provided to their depositors. J&L want to offer an EAR of 30%.What APR do they need to report?
• If Evergreen Bank is now offering semi-annual interest rate instead, what is the semiannual interest rate (i.e. periodic interest rate) they need to offer if they want to maintain the same EAR?