1. Consider the $50,000 excess cash.Assume that Gary invests the funds in a one

Question

1. Consider the $50,000 excess cash.Assume that Gary invests the funds in a one year CD
a.What is the CD s value at maturity( future calue)if it pays 10 percent(annual) interest?

b. What will its future value be if the CD pays 5 percent interest? If it pays 15 percent interest?

c.BankSouth offers CDs with 10 percent nominal (stated) interest, but compounded semiannually.What is the effective annual rate on this CD>What will the future value be after one year if $50,000 were invested?

d. The Penescola branch of bank of America offers a 10 percent CD with daily compounding. What are the CD s effective annual rate and its value at maturity one year from now if $50,000 is invested?(Assume a 365 day year)
e.What stated rate will BankSouth have to offer to make its semi annual compounding CD competitive with Bank of America s daily compoundin CD?

Explanation / Answer

a) FV= 50,000(1.1000) =55000@10% b) FV= 50,000(1.0500) =52500@5% FV= 50,000(1.1500) =57500@15% c) I2=10% 1+i= (1+i2/2)2 1+i= (1+.10/2)2 =(1.1025) i=1.1025% ----effective annual rate FV= 50000*10.25 = 512500 D)I(365) = 10% 1+I = (1+i(365)/365)365 = 1+I = (1+ .10/365)365 =1.1051, i= 10.51 FV = 50000*10.51=525500

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.