Question

@John_ES

Savings account A and savings account B both offer APRs of 5%, but savings account A compounds interest semiannually, while savings account B compounds interest quarterly. Which savings account offers the higher APY?

A. Savings account B, because it has fewer compounding periods per year
B. Savings account A, because it has more compounding periods per year
C. Savings account A, because it has fewer compounding periods per year
D. Savings account B, because it has more compounding periods per year

Answer 1

In this case I choose C. I use the formula,
\[APY_A/APY_B=\frac{(1+0.05/2)^2-1}{(1+0.05/4)^4-1}\approx1.00621\]