Universal Bank pays 7% interest, compounded annually, on time deposits. Regional Bank

pays 6% interest, compounded quarterly.

a. Based on effective interest rates, in which bank would you prefer to deposit your money?

b. Could your choice of banks be influenced by the fact that you might want to

withdraw your funds during the year as opposed to at the end of the year? In

answering this question, assume that funds must be left on deposit during an entire

compounding period in order for you to receive any interest.