Question

Which do you prefer: a bank account that pays

5.7%

per year (EAR) for three years ora. An account that pays

2.7%

every six months for three years? b. An account that pays

7.1%

every 18 months for three years? c. An account that pays

0.33%

per month for three years?

(Note: Compare your current bank EAR with each of the three alternative accounts. Be careful not to round any intermediate steps less than six decimal places.)

If you deposit

$1

into a bank account that pays

5.7%

per year for three years:The amount you will receive after three years is

$nothing.

(Round to five decimal places.)a. An account that pays

2.7%

every six months for 3 years? If you deposit

$1

into a bank account that pays

2.7%

every six months for three years:The amount you will receive after three years is

$nothing.

(Round to five decimal places.)Which bank account would you prefer?

▼

5.7% per year for three years

2.7 % every six months for three years

. (Select from the drop-down menu.)b. An account that pays

7.1%

every 18 months for 3 years? If you deposit

$1

into a bank account that pays

7.1%

every 18 months for three years:The amount you will receive after three years is

$nothing.

(Round to five decimal places.)Which bank account would you prefer?

▼

7.1% every 18 months for three years

5.7% per year for three years

. (Select from the drop-down menu.)c. An account that pays

0.33%

per month for three years? If you deposit

$1

into a bank account that pays

0.33%

per month for three yearsThe amount you will receive after three years is

$nothing.

(Round to five decimal places.)Which bank account would you prefer?

▼

0.33% every month for three years

5.7 % per year for three years

. (Select from the drop-down menu.)

Enter your answer in each of the answer boxes.

Answer #1

If you deposit $1 into a bank account that pays 5.7% per year
for three years:The amount you will receive after three years
is

=1*1.057^3

=1.181

Which bank account would youprefer?

5.7% per year

If you deposit $1 into a bank account that pays 2.7% every six
months for three years:The amount you will receive after three
years is

=1*1.027^6

=1.173

Which bank account would youprefer?

5.7% per year

If you deposit $1 into a bank account that pays 7.1% every 18
months for three years:The amount you will receive after three
years is

=1*1.071^2

=1.147

Which bank account would youprefer?

5.7% per year

If you deposit $1 into a bank account that pays 0.33% per month
for three yearsThe amount you will receive after three years
is

=1*1.0033^36

=1.126

Which bank account would youprefer?

5.7% per year

Which do you prefer: a bank account that pays 5.7% per year
(EAR) for three years or a. An account that pays 2.2% every six
months for three years? b. An account that pays 7.1% every 18
months for three years? c. An account that pays 0.42% per month
for three years? (Note: Compare your current bank EAR with each
of the three alternative accounts. Be careful not to round any
intermediate steps less than six decimal places.)

If you deposit
$1
into a bank account that pays
4.7%
per year for three years:The amount you will receive after
three years is
$nothing.
(Round to five decimal places.)a. An account that pays
2.9%
every six months for 3
years? If
you deposit
$1
into a bank account that pays
2.9%
every six months for three years:The amount you will receive
after three years is
$nothing.
(Round to five decimal places.)Which bank account would you
prefer?
▼
2.9 % every...

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years?
b. An account that pays 7.5 %every 18 months for three
years?
c. An account that pays 0.31% per month for three years?
(Note: Compare your current bank EAR with each of the three
alternative accounts. Be careful not to round any intermediate
steps less than six decimal places.)

Which do you prefer: a bank account that pays
4.5 %
per year (EAR) for three years or
a. An account that pays
2.7 %
every six months for three
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7.3 %
every 18 months for three
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(i) An account that pays 4% every six months for three
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(ii) An account that pays 12% every 18 months for three
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(iii) An account that pays 0.8% per month for three years?

Which do you prefer: a bank account that pays 8% per year (EAR)
for three years or:
(i) An account that pays 4% every six months for three
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(ii) An account that pays 12% every 18 months for three
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(iii) An account that pays 0.8% per month for three years?

Which do you prefer:
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An account that pays 3.6% every 6 months for 5 years
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An account that pays 0.55% every month for 5 years
A
B
C
D

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Suppose a seven-year, $1,000 bond with a 10.96% coupon rate and
semiannual coupons is trading with a yield to maturity of
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a. Is this bond currently trading at a
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b. If the yield to maturity of the bond rises
to 8.73%
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a. Is this bond currently trading at a
discount, at par, or at a premuim? Explain.
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