Question

Assume you just inherited $2,500 from a deceased relative and you choose to invest it to start saving for the down payment on a vehicle you plan to purchase 4 years from now. You are considering the following choices:   Your credit union offers a certificate paying 2% simple interest; a local bank is offering a certificate paying 1.95% compounded quarterly; and a reputable investment firm is offering a certificate paying 1.90% compounded monthly.   Ignoring for now taxes and other special considerations, carefully evaluate your opportunities. Choose an investment and defend your choice. (solve each using algebra formulas, then check with spreadsheet function and include in the spreadsheet you submit for this assignment.)

Credit Union:

Bank:

Investment firm:

Your Conclusion:

Answer 1

EAR

Credit Union = 2%

Bank = (1 + 1.95%/4)^4 - 1 =1.96%

Investment firm =  (1 + 1.90%/12)^12 - 1 =1.92%