1.) What investment accumulates more interest--15% compounded semiannually, or 1

Question

1.)

What investment accumulates more interest--15% compounded semiannually, or 14% compounded daily?

The 15% option earns one percentage point more than the 14% option over a year

The 15% option accumulates more over a year--EAR of 15.5% vs. the 14% option, with an EAR of 15.0%

They accumulate the same amount over a year

The 14% option earns an EAR of 15% and is better than the 15% option with an EAR of 15.9

2.)

The 15% option earns one percentage point more than the 14% option over a year

The 15% option accumulates more over a year--EAR of 15.5% vs. the 14% option, with an EAR of 15.0%

They accumulate the same amount over a year

The 14% option earns an EAR of 15% and is better than the 15% option with an EAR of 15.9

Explanation / Answer

1)

Equivivent anual rate EAR = (1+ Annual percentage rate/number of preiods ina year)^number of periods in a year -1

so , 15% compounded semi annually

EAR = (1+ 15%/2)^2 - 1 = 15.5625%= 15.5% (approxmately)

14% compounded daily and assuming 365 days a year

EAR = (1+14%/365)^365 -1 = 15.0243% = 15% ( approxmately)

therefore

b.
The 15% option accumulates more over a year--EAR of 15.5% vs. the 14% option, with an EAR of 15.0%

2)

Ballon payments mortageges are the payments which are made when the entire loan is not amortizd over the time period and ballon payment is made at maturity

as W has no ballon payment , it is fully amortized

X and Y are partially amortized, as they have ballon paymenst to be made

Z is paying more than borrowed on maturity, so it is negativiely amortized

so the correct option is

c.  
X is partial amortization; Z is negative amortization

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