Answer:
Effective interest rate for Bank A is 7.5% and for Bank B is 7.18%.
Explanation:
BANK A
Effective Rate = (( 1 + i/m )^n ) - 1
Effective Rate = (( 1 + 0.075/1 )^1 ) - 1
Effective Rate = (( 1 + 0.075 )^1 ) - 1
Effective Rate = (( 1.075 )^1 ) - 1
Effective Rate = 1.075 - 1
Effective Rate = 0.075
Effective Rate = 7.50%
BANK B
Effective Rate = (( 1 + i/m )^n ) - 1
Effective Rate = (( 1 + 0.0695/12 )^12 ) - 1
Effective Rate = 1.07176 - 1
Effective Rate = 0.07176
Effective Rate = 7.176% = 7.18%
