Account B will yield more.
Savings account A and savings account B both offer APRs of 5%
But savings account A compounds interest annually, while savings account B compounds interest monthly.
Lets check which account will yield more :
Lets take p = 10,000
r = 5% or 0.05
n = 1
t = 1
Compound interest formula is :
[tex]p(1+\frac{r}{n})^{nt}[/tex]
Substituting values in formula;
[tex]10000(1+\frac{0.05}{1})^{1}[/tex]
= $10500
Lets take p = 10,000
r = 5% or 0.05
n = 12
t = 1
Compound interest formula is :
[tex]p(1+\frac{r}{n})^{nt}[/tex]
Substituting values in formula;
[tex]10000(1+\frac{0.05}{12})^{12}[/tex]
= $10510
We can see that account B gives more yield as compared to account A. When an account is compounded monthly, we earn interest on interest. This is why we yield more.
Therefore, account B will yield more.
Answer:
Account B
Step-by-step explanation:
When compounding interests monthly that means that there will be 12 times a year that the interests will be compounded, while in the other option the interests will only be compounded one time a year. Since that is the case, the one that will produce more interests for the person opening that account would be B since the interests are compounded annually.
