Amir is trying to decide between vo savings account plans at two lfferent banks. Bank A offers a luarterly compounded interest rate bf 0.95% , while Bank B offers 3.75% nterest compounded annually. Which is the better plan? Bank A Bank B Bank A Equation: __ Bank B Equation: __ US e t=1

To determine which bank offers the better savings account plan, we need to compare the effective annual rates (EAR) of the two banks.<br /><br />Let's start with Bank A:<br /><br />Bank A offers a quarterly compounded interest rate of 0.95%. To calculate the effective annual rate, we can use the formula:<br /><br />EAR = (1 + r/n)^(n*t) - 1<br /><br />Where:<br />- r is the nominal interest rate (0.95% or 0.0095 as a decimal)<br />- n is the number of compounding periods per year (4 for quarterly)<br />- t is the time in years (1 year)<br /><br />Plugging in the values, we get:<br /><br />EAR = (1 + 0.0095/4)^(4*1) - 1<br />EAR = (1 + 0.002375)^(4) - 1<br />EAR = 1.0095 - 1<br />EAR = 0.0095 or 0.95%<br /><br />Now let's calculate the effective annual rate for Bank B:<br /><br />Bank B offers an annual compounded interest rate of 3.75%. Since the interest is compounded annually, the effective annual rate is the same as the nominal interest rate.<br /><br />EAR = 3.75%<br /><br />Comparing the effective annual rates, we can see that Bank B offers a higher effective annual rate of 3.75% compared to Bank A's 0.95%.<br /><br />Therefore, Bank B is the better plan.<br /><br />Bank A Equation: EAR = (1 + 0.0095/4)^(4*1) - 1<br />Bank B Equation: EAR = 3.75%