Bank A is offering an interest rate of 6.60% compounded monthly, while bank B is offering an interest rate of 6.67% compounded quarterly.

Question

The effective rate offered by bank A =?%,

while the effective rate offered by bank B = ?%.

Answer 1

(1 + i/n)^n - 1

A

(1+.066/12)^12 - 1 = .0680 = 6.80 %

B

(1+.0667/4)^4 - 1 = .0684 = 6.85%