Question

You are the financial manager of a large company and you must
recommend the best investment to the board of directors.

1- (30 points) If the firm wants to invest 100,000 €, which of
the following options is the most interesting one:

a) To invest in a bank account that offers an annual simple
interest rate of 7%, for 10 years

b) To invest in a bank account that offers an annual compound
interest rate of 6%, for 10 years

The bank pays interests once per year.

2- (40 points) If you decide the option of compound interest
rate, what is the total amount after 10 years if the interests are
paid: a. Semesterly

b. Quarterly c. Monthly d. Weekly

Compare the results and choose the best option for your
firm.

(Can you please send the answer for question 2 only i had to
put Q1 because they are related.)

thank you

Answer #1

You have $100 and think where to invest your money. You have
three options. Option A promises you a weekly interest rate of
0.3%, compounded weekly. Option B promises a 16% annual interest
rate with one payment at the end of each year. Finally, option C
has a quoted annual rate of 15% with quarterly compounding. Assume
that a year consists of 52 weeks.
(a) (3 points) What are APRs of the three investment opportunities?
(b) (6 points) Rank these...

You have saved 120,000€ and you want
to know which is the better option for your money,
It is better to spend the money today or invested and receive
122,000 in 3 years with annual simple interest rate of 10%?
(25
points)
The bank offers you some options, however, you can't withdraw
it for 5 years:
8% simple interest (15 points)
6% compounded semiannual (15
points)
5.5% compounded monthly (15
points)
Which is the best
option of the bank?...

You have saved 120,000€ and you want
to know which is the better option for your money,
It is better to spend the money today or invested and receive
122,000 in 3 years with annual simple interest rate of 10%?
(25
points)
The bank offers you some options, however, you can't withdraw
it for 5 years:
8% simple interest (15 points)
6% compounded semiannual (15
points)
5.5% compounded monthly (15
points)
Which is the best
option of the bank?...

Q1.
An investment company offers you an annuity of $20,000 per year
for the next 10 years. The interest rate is 10%. How much would you
be willing to pay for the annuity?
Q2.
You have $100,000 to invest now and would also like to invest
$6,000 for each of the next five years in an investment which
returns 8% per year. With annual compounding, how much will your
investment be worth in 5 years?

Q1) Richard wants to save $100,000 in 12 years. He is offered
the following three options by his bank:
An account with interest rate 4.5% and annual compounding.
An account with interest rate 4.0% and semi-annual
compounding.
An account with interest rate 3.7% and quarterly
compounding.
a) Determine how much he must save today to reach his goal in 12
years.
b) Which of the options above would you recommend? Explain your
answer.

You are choosing between investments offered by two different
banks. One promises a return of 10% for three years using simple
interest while the other offers a return of 10% for three years
using compound interest. You should: A) Choose the simple interest
option because both have the same basic interest rate. B) Choose
the compound interest option because it provides a higher return.
C) Choose the compound interest option only if the compounding is
for monthly periods. D) Choose...

8. At what quoted annual interest rate must $135,000
be invested so that it will grow to be $460,000 in 15 years if
interested is compounded weekly?
9. If you wish to accumulate $500,000 in 20 years,
how much must you deposit today in an account that pays a quarterly
interest rate of 2%?
10. How many months will it take for $200,000 to grow to be
$550,000 if it is invested in an account with a quoted annual
interest rate of...

5A-1
FV CONTINUOUS COMPOUNDING If you receive $15,000 today and can
invest it at a 6% annual rate compounded continuously, what will be
your ending value after 15 years?
5A-2
PV CONTINUOUS COMPOUNDING In 7 years, you are scheduled to
receive money from a trust established for you by your
grandparents. When the trust matures there will be $200,000 in the
account. If the account earns 9% compounded continuously, how much
is in the account today?
5A-3
FV CONTINUOUS COMPOUNDING...

You were recently appointed financial manager for Speedgro
Limited and are now requested by the board of directors to invest
an amount of R5million taking the risk associated with the
investment alternatives into account
The chairman of the board feels that the funds should be
invested in government bonds. The interest earned on government
bonds are directly related to the state of the economy. If a
recession sets in the interest rate is estimated at 20% per year
for a...

a. You are considering an investment of $55,000 in an account
that pays 8.3 percent compound interest. How much less interest
would you earn in a 3-year period if the interest was simple?
(10%) b. Your firm wants to borrow $250.000 for 10 years from
the bank in order to pursue a big
investment opportunity. The bank will lend the money but it
requires an upfront fee of $ 10,000. The interest is 6.3%. How much
will you be paying...

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