Question
You are considering two investment contracts that each cost $1,000. You will chose the one that...
You are considering two investment contracts that each cost $1,000. You will chose the one that has the highest future value. The rates of return offered by each contract are the following. Both contracts are issued by a company with a AAA credit rating. Contract B is the better choice. True or False?
|
rate of return contract A |
Starting Balance Contracts A & B |
rate of return contract B |
||
|
2.00% |
$1,000 |
0.05% |
||
|
2.00% |
0.05% |
|||
|
2.00% |
0.05% |
|||
|
2.00% |
0.05% |
|||
|
2.00% |
0.05% |
|||
|
2.00% |
1.00% |
|||
|
0.05% |
1.00% |
|||
|
0.05% |
3.00% |
|||
|
0.05% |
3.00% |
|||
|
0.05% |
3.00% |
Homework Answers
Answer #1
Value of investment A after 10 year is calculated in excel and screen shot is provided below:
Value of investment A after 10 year is $1,128.42
Value of investment B after 10 year is calculated in excel and screen shot is provided below:
Value of investment B after 10 year is $1,109.63.
Since, Value of Investment After 10 year is higher than value of investment B after 10 year. So he should invest in investment A.
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