Question

You are considering three alternative banks in which to open a
savings account. The first bank offers you an annual rate r1, and
the interest is paid monthly. The second bank offers a rate r2, and
the interest is paid daily. The third bank offers a rate r3, and it
offers continuous compounding.

Give all answers to four decimal places.

1) Suppose you were to save $500.0000 in the first bank. The interest rate is r1=8.0000%. Three years from now, you should have $

2) Suppose you were to save $500.0000 in the second bank. The interest rate is r2=5.0000%. Three years from now, you should have $

3) Suppose you were to save $500.0000 in the third bank. The interest rate is r3=3.0000%. Three years from now, you should have $

4) Let the interest rate in the first bank be r1=8.0000%, and you are considering saving your money for 3 years. The interest rate from the second bank that would make you indifferent between the first and second bank is r2=

5) Let the interest rate in the third bank be r3=3.0000%, and you are considering saving your money for 3 years. The interest rate from the first bank that would make you indifferent between the first and third bank is ?

Answer #1

**1)** Amount Saved = $500

r1 = 8%

N = 3 years

Formula with compounding effect of month = P [1 + r1 / (12 *
100)] ^{12 * n}

Thus it becomes = $500 [1 + 8 / (12 * 100)] ^{12 * 3} =
$635.11

**2)** Amount Saved = $500

r2 = 8%

N = 3 years

Formula with compounding effect of daily = P [1 + r2 / (365 *
100)] ^{365 * n}

Assuming 365 days a year.

Thus it becomes = $500 [1 + 8 / (365 * 100)] ^{365 * 3}
= $635.60

**3)** Amount Saved = $500

r3 = 8%

N = 3 years

Formula with compounding effect of month = P * e ^{r3 *
n}

Thus it becomes = $500 * e ^{0.08 * 3}

= $635.62

**4)** Interest rate which will make you
indifferent between first and second bank will give you the same
Amount after 3 years of investment. Here r2 is giving you slightly
more return than r1.

To make consumer indifferent, $635.11 = $500 [1 + r2 / (12 *
100)] ^{12 * 3}

r2 = 7.9995473%

This interest rate will make consumer indifferent between r1 and r2.

**5)** Interest rate which will make you
indifferent between first and third bank will give you the same
Amount after 3 years of investment. Here r3 is giving you slightly
more return than r1.

To make consumer indifferent, $635.62 = $500 * e ^{r3 *
3}

r2 = 7.9995472%

This interest rate will make consumer indifferent between r1 and r3.

Suppose you deposit $20,000 into a saving account at your local
bank. If the bank pays an average interest rate of 5% annually, how
much money will you have in your saving account in 15 years?
Suppose, your bank talks you into opening a saving account with
them. The bank promises that if you put $10,000 in the saving
account today, you will receive $20,000 10 years from now. What is
the average interest rate that the bank will pay...

Suppose you are considering depositing $1,000 in bank CDs. CD1
will pay 5% per year for three years, and CD2 will pay 8% for the
first year, 5% for the second year, and 3% the third year. Which CD
should you choose?

1. First City Bank pays 7 percent simple interest on its savings
account balances, whereas Second City Bank pays 7 percent interest
compounded annually. If you made a deposit of $16,000 in each bank,
how much more money would you earn from your Second City Bank
account at the end of 11 years? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g.,
32.16.)
Difference ____________
2. Assume that in 2014, an 1872 $20 double eagle...

First City Bank pays 8 percent simple interest on its savings
account balances, whereas Second City Bank pays 8 percent interest
compounded annually.
If you made a deposit of $8,500 in each bank, how much more money
would you earn from your Second City Bank account at the end of 11
years?

21. Suppose you save $8,000 in a saving account for two years.
For the first year the interest rate is 9.9% compounded monthly,
while during the second year the interest rate is 11.6% compounded
monthly. What is the balance in your savings account after the
second year?
(a) $9,743.78 (b) $9,909.35 (c) $9,811.87 (d) $17,807.91

You want to deposit $3,000 now into a savings account for 5
years. The Northeast bank offers an APR of 12% with simple interest
while the Southwest bank offers an APR of 10% with monthly
compounding. Which bank would you prefer and why?
a) The Northeast bank because it offers an additional $ 229 in
interest.
b) The Northeast bank because it offers an additional $ 130 in
interest.
c) The Southwest bank because it offers an additional $135 in...

1- Second Union Bank pays 5 percent simple interest on its
savings account balances, whereas Third Street Bank pays 5 percent
compounded annually. If you made a $12,000 deposit in each bank,
how much more money would you earn from your Third Street Bank
account at the end of 15 years?
2- Second Union Bank pays 5 percent simple interest on its
savings account balances, whereas Third Street Bank pays 5 percent
compounded annually. If you made a $12,000 deposit...

First City Bank pays 8 percent simple interest on its savings
account balances, whereas Second City Bank pays 8 percent interest
compounded annually.
Required:
If you made a deposit of $10,500 in each bank, how much more
money would you earn from your Second City Bank account at the end
of 10 years? (Do not round intermediate calculations and
round your answer to 2 decimal places (e.g.,
32.16).)
Difference
$

First City Bank pays 6 percent simple interest on its savings
account balances, whereas Second City Bank ... If you made an
$8,100 deposit in each bank, how much more money would you earn
from your Second City ...

5. Steven has just deposited $ 10,000 in a bank
account that has
a 12 percent monthly interest rate.
How much will there be in the
account within three years?
6. Suppose you borrow $ 10,000 for four years at 18
interest cent. How much will the monthly payment of the
loan?
7. You want to withdraw $ 3,000 annually for three years, if the
rate of
interest is 8
percent biannually, how...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 6 minutes ago

asked 47 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago