Question

1. You currently have AED40,000 and plans to purchase a 5-year certificate of deposit (CD).

a. How much will you have when the CD matures if it pays 7% interest, compounded annually?

b. How much will you have when the CD matures if it pays 6%, or 20% interest, compounded annually?

c. How much will you have when the CD matures if it pays 6%, or 20% interest, compounded semiannually?

d. Why does the annual compounding and semiannual compounding give different answers?

Would you prefer annual compounding or semiannual compounding or quarterly compounding for your investments?

e. How much will you have when the CD matures if you purchase a 10-year CD that pays 7% interest, compounded annually?

f. Do you observe any relationship between the period of investment and the future value?

Answer #1

a) FV = PV(1+r)^n

=40,000(1+7%)^5

=40,000(1.07)^5

=40000(1.402552)

=56102.07$

b) if Cd pays 6% , then

FV = PV(1+r)^n

=40,000(1+6%)^5

=40,000(1.06)^5

=40000(1.338226)

=53529.02$

If r = 20%, then,

FV = PV(1+r)^n

=40,000(1+20%)^5

=40,000(1.2)^5

=40000(2.48832)

=99532.8$

C) If interest is compounded annually

FV = PV(1+r)^n

=40,000(1+3%)^10

=40,000(1.03)^10

=40000(1.343916)

=53756.66$

If r = 20%, then,

FV = PV(1+r)^n

=40,000(1+10%)^10

=40,000(1.1)^10

=40000(2.593742)

=103749.7$

d) Because in semi annual compounding interest earnd for 6 month is included while calculating balance at end of year one resulting in higher future value, hence more the compounding more the interest

Hence one should prefer quarterly compounding for your investments

Suppose you have $2000 and plan to purchase a 10
year-certificate of deposit that pays 11.1% interest, compounded
annually. How much will you have when the CD matures?

You want to purchase an 4-year certificate of deposit (CD) that
pays 3.7% interest per year.
If you put $2,000 into the CD today, how much money will you
have when the CD matures at the end of year 4?

You purchase a three year certificate of deposit (CD)
for $100,000 on January 1st, 2000. This CD has an annual interest
rate of 5%. The interest compounds continuously. What is the
balance for the CD account on July 1, 2001?
$105,000
$107,500
$107,593
$110,250

Bank A offers a 2-year certificate of deposit (CD) that pays 10
percent compounded annually. Bank B offers a 2-year CD that is
compounded semi-annually. The CDs have identical risk. What is the
stated, or nominal, rate that Bank B would have to offer to make
you indifferent between the two investments?
show work on excel*

Suppose you obtain a $3,000 Certificate of Deposit (CD) with a
3% annual rate, paid quarterly, with maturity in 5 years.
a. What is the future value of the CD in 5 years?
b. How much interest will you earn?
c. What percent of the balance is interest?
Please show work, if possible in excel showing formulas used

Question No : 3
If you deposit 10 $ in an account, that pays 5% interest,
compounded annually, how much you will have at the end of 10 years?
50 years and 100 years
How much will be in account at the end of 5 years the amount
deposited today is 10,000 and interest is 8% per year, compounded
semiannually?
How much would I have to deposit in an account today that pays
12% interest, compounded quarterly, so that I...

16. You have $1,000 to deposit in a savings account for 1 year.
You can get a passbook savings
account drawing 7.75% interest compounded continuously, or a
certificate of deposit paying 8%
compounded quarterly, or a savings bond paying 8.25% compounded
annually. Which alternative
should you take?
a. 7.75% compounded continuously
b. 8% compounded quarterly
c. 8.25% compounded annually
d. all of the above are have equal annualized yields
17. You are considering two investments described below:
Investment
A 10%...

Assume that you have $3000 to invest for 5 years. You could
purchase a 5-year CD with a guaranteed interest rate of 2.52%
compounded monthly. On the other hand, if you are willing to face
the risk of actually losing your money, you could invest it in the
stock market which has an historical return rate of about 6.5% per
year. Think of this as investing your money in a
non-guaranteed account that pays 6.5% APR compounded
annually.
With the...

If you purchased a $10,000 certificate of deposit today with an
APR of 12% with monthly compounding, what would the CD be worth
when it matures in six years?
must show work/calculation

4. How much money needs to be deposited into a certificate of
deposit (CD) account to be able to withdraw 50,000.00 from the
account at the end of 10 years if the interest rate is 2%
compounded monthly?

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