A.) First City Bank pays 7 percent simple interest on its savings account balanc

Question

A.) First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually. If you made an $8, 000 deposit in each bank, how much more money would you earn from your Second City bank account at end of 10 years?

B.) Calculating Future Values. For each of the following:

Present Value Years Interest Rate Future Value

3,150 6 18% ?

8,453 19 6 ?

89,305 13 11 ?

227,382 29 5 ?

C.) Solve the unknown interest rate in each of the following:

Present Value Years Interest Rate Future Value

715 6 ? 1,381

905 7 ? 1,718   

15,000 18 ? 141,832

70,300 21 ? 312, 815

Explanation / Answer

A. FCB : Simple Int per year on 8000@7% = 560

So For 10 Yrs, Simple Int = 10*560 = 5600

So after 10 Yrs, Total AMt is 8000+5600=13600

SCB : 8% COmpounded annualy

So FV = PV*(1+i)^n = 8000*(1+8%)^10 = $17,271.40

SO Diff is $17,271.40 - 13600 = $3,671.40

So One will make $3,671.40 more in SCB.

B.

FV = 3150*(1+18%)^6 = $8,503.60

FV = 8453*(1+6%)^19 =$25,575.39

FV = 89305*(1+11%)^13 =$346,796.33

FV = 227382*(1+5%)^29 =$935,935.14

C. Int Rate= Rate(nper,pmt,pv,fv)

Here PMT = 0

So Int rate = Rate(6,0,-715,1381) = 11.60%

Int rate = Rate(7,0,-905,1718)=9.59%

Int rate = Rate(18,0,-15000,141832)=13.29%

Int rate = Rate(21,0,-70300,312815)=7.37%

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