.00 points You have accumulated $6,650 and are looking for the best rate of retu

ID: 2330687 • Letter: #

Question

.00 points You have accumulated $6,650 and are looking for the best rate of returm that can be earned over the next year. A bank savings account will pay 5% A one-year bank cerificate of deposit will pay 7%, but the minimum investment is$9,650. Required: a Calculate the amount of return you would earn if the S6650 were invested for one year at 5%. b Caiolate the net amount of return you would earn ifsa000 were borrowed at a cost of 15%, and then so,650 were invested for one year at 7%. Round intermediate calculations) . Calculate the net rate of returm on your investment of $6,650 if you accept the strategy of part b. (Round intermediate calculations. Round your answer to 2 decimal places

Explanation / Answer

Basic data:

Amount in hand = $ 6,650

One year Bank savings rate of return = 5%

One year bank certificate of deposits rate of return = 7%

1.Calculate the amount of return you would earn if the $ 6,650 were invested for one year at 5%:

Amount of Return = Amount of investment *Return%

= $ 6,650* 5%

= $ 332.50

2.Calculate the net amount of return you would earn if $ 3,000 were borrowed at a cost of 15%, and then $ 9,650 were invested for one year at 7%:

Particulars

Working

Amount ($ )

Return on investment

$9650*7%

675.50

Less: Cost of borrowing

$3000*15%

450

Net amount of return

225.50

3.Calculate the net rate of return on your investment of $6,650 if you accept the strategy of part b:

= $225.50/ $6,650*100

= 3.39%