Question

1.)What is the future value of $1,230 each year for 6 years at a 8 percent rate of interest? $7,970.40 $9,023.19 $10,982.68 $3,605.60 $10,707.68

2.)

Bank 1 quotes an annual rate of 10.4 % with monthly compounding. Bank 2 uses semiannual compounding and quotes an annual rate of 10.6 %

Requirement 1:

Calculate the effective annual interest rate for each bank. (Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

	EAR
Bank 1	%
Bank 2	%

Answer 1

1) What is the future value of $1,230 each year for 6 years at a 8 percent rate of interest?

2) EAR of Bank 1 = (1 + 0.104/12)^12 - 1

EAR of Bank 1 = 0.1091033769

EAR of Bank 1 = 10.91033769%

EAR of Bank 1 = 10.91%

EAR of Bank 2 = (1 + 0.106/2)^2 - 1

EAR of Bank 2 = 0.108809

EAR of Bank 2 = 10.8809%

EAR of Bank 2 = 10.88%