1. Which bank should Gary choose for a saving account, which bank for a certific
ID: 2777902 • Letter: 1
Question
1. Which bank should Gary choose for a saving account, which bank for a certificate of deposit, and which bank for a term loan?
2. Gary will invest the donations from a wealthy investor in CDs. How much will the Center have accumulated on the day of the last donation? (Use the CD interest rate offered by the bank you selected for a CD in question 1.)
3. If the Center takes out a 5-year term loan that would be repaid in equal annual installments, how much will it owe to BankSouth if Gary decides to pay off the loan early, at the end of the third year? (Use the term loan interest rate offered by the bank you selected for a term loan in question 1.)
Explanation / Answer
1.)
Sun trust
r = interest rate
m = compounding
= ( 1 + r / m)m - 1
= ( 1 + .04 / 365days)7 days - 1
= ( 1 + .00011)7 - 1
= 1.00077 - 1
= .077% (weekly)
Bank South
r = interest rate
m = compounding
= ( 1 + r / m)m - 1
= ( 1 + .041 / 52weeks)1 week - 1
= ( 1 + .00079)1 - 1
= 1.00079 - 1
= .079% (weekly)
Sun trust
r = interest rate
m = compounding
= ( 1 + r / m)m - 1
= ( 1 + .06 / 12months)12 months - 1
= ( 1 + .005)12 - 1
= 1.0617 - 1
= .6.17% (annually)
Bank South
r = interest rate
m = compounding
= ( 1 + r / m)m - 1
= ( 1 + .061 / 1 year)1 year - 1
= ( 1 + .061)1 - 1
= 1.061 - 1
= 6.1% (annually)
Sun trust
r = interest rate
m = compounding
= ( 1 + r / m)m - 1
= ( 1 + .08 / 4 quaters) 4 quaters - 1
= ( 1 + .02)4 - 1
= 1.0824 - 1
= 8.24% (annually)
Bank South
r = interest rate
m = compounding
= ( 1 + r / m)m - 1
= ( 1 + .0806 / 2 semi-annually)2 semi-annually - 1
= ( 1 + ..0403)2 - 1
= 1.0822 - 1
= 8.22% (annually)
Bank Name Product Compounding Interest Rate Effective Interest Rate Decision Sun Trust Saving Account Daily 4.00 % = .077% [ working below ] reject Bank South Saving Account Weekly 4.10 % = .079% [ working below ] acceptRelated Questions
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