Question

Chris wants to deposit $100 in a bank for two years. He can either 1) leave the money for two years and earn an annual rate of 11% or 2) deposit money for one year and earn annual interest rate of 10%, then come back to the bank and re-deposit the original investment plus earned interest for another year. What value of one-year interest rate one year from now would yield the very same outcome for Chris if he chooses option #2 compared to how much he would collect after two years is he goes with option #1?

A.

1%

B.

12.01%

C.

9.01%

D.

11.50%

E.

21%

F.

12.50%

G.

11.02%

H.

10.50%

Answer #1

**Answer:**

**Correct answer is:**

**B. 12.01%**

**Explanation:**

**Option
1:**

Deposit = $100

Annual rate = 11%

Duration = 2 years

Amount Chris will get = FV = PV * (1 + Annual rate) ^2 = 100 * (1 + 11%) ^2 = $123.21

**Option
2:**

Deposit = $100

Annual rate = 10%

Duration = 1 years

Amount Chris will get after 1 year = 100 * (1 + 10%) = $110

We need to find one-year interest rate one year from now would yield the very same outcome for Chris if he chooses option #2 compared to how much he would collect after two years is he goes with option #1

Required one-year interest rate one year from now would be = (123.21/ 110 -1) * 100 = 12.02%

**Required one-year interest rate one year from now would
be = 12.01%**

Option B is correct and other options A and C to H are incorrect.

Mr. Tom has $ 50,000/- that he can deposit in any of the three
saving accounts
for a period of three years. Bank A compounds interest on annual
basis, Bank B
compounds interest on semi-annually basis and bank C compounds
interest on
quarterly basis. All these banks have a stated rate of 5% per
annum.
Required:
(1) Compute Effective Annual Rate (EAR), Mr. Tom can earn from each
bank.
(2) What amount would Mr. Tom have at the end of...

Bank Maju Jaya gives 5% interest with an annual interest
rate scheme
to customers who deposit their money at the bank.
Another bank
, Bank Makmur Sentosa, gives 5% interest with an
interest rate scheme
quarterly. Mr. Yamamichi will deposit IDR
30,000,000 for 3 years. In which bank should he deposit
his money
to get a larger amount of money at the end of year
3?

Francisco wants to raise $ 250,000 in 4 years and to
achieve this he decides to deposit in a bank account a fixed amount
of money each month due, at an interest rate of 10.4% capitalizable
monthly. If the bank increases the rate to 11.2% capitalizable each
month once deposit number 30 is made, what amount must be deposited
the rest of the time to collect the desired amount?

Two banks offer different interest rates on your deposit
of $10,000 over 3 years. Bank A offers an 8% interest compounded
annually and Bank B offers an 8.5% simple annual interest. Which
would earn the most interest (INT) over the 3 year period, and by
how much?

Suppose you have $100,000 to place in a bank deposit in either
the United States of Great Britain. The annual interest rate on
bank deposits in the United States is = 6% and in Britain is is =
8.5%. The spot US dollar/British pound exchange rate is = 1.9421
and the one-year forward rate is = 1.9933. Answer the following
questions using the exact equation for covered interest parity
(CIP), a. if you deposit your money in the US,...

Problem #3
Rup is planning to retire in 35 years. He wishes to
deposit a regular amount every quarter until he retires so that,
beginning one-year following his retirement, he will receive annual
payment of $100,000 for the next 20 years. The interest rate is 10%
compounded monthly.
How much money he must have in his savings account at
retirement?
How much money must he deposit every quarter for the
next 35 years?

Micheal inherited $10,000 from his uncle & is planning to
invest his money for 10 years. He is considering 2 options
1) a money market account with 2.4% annual interest rate,
compounded daily
2) a treasury note with 2.6% simple annual interest rate
compare these 2 investment options and determine which will pay
more interest over the 10 year period. If micheal chooses the
better option how much interest will he earn?
a) option 1 is better, micheal will earn...

A man is planning to retire in 25 years. He wishes to deposit a
regular amount every three months until he retires so that
beginning one year following his retirement (i.e., year 26), he
will receive annual payments of SR50,000 for the next 10 years. How
much must he deposit if the interest rate is 9% compounded
quarterly?

A man is planning to retire in 20 years. He wishes to deposit a
regular amount every three months until he retires, so that,
beginning one year following his retirement, he will receive annual
payments of $60,000 for the next 15 years. How much must he
deposits if the annual interest rate is 6% compounded quarterly?
(Note that the last deposit is made on the date of the end of 20th
year, and first withdrawal is at the end of...

If you deposit $1000 in one year, $2000 in two years and $3000
in three years, $4000 in four years, $5000 in five years. How much
will you have in five years at 9 percent interest?
How much in 10 years if you add nothing to the account after the
fifth year?
a) Suppose you invest $2500 in a mutual fund today and $5000 in
one year. If the fund pays 9% annually, how much
will you have in two...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 8 minutes ago

asked 8 minutes ago

asked 28 minutes ago

asked 36 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago