what is true about finding the x®° Chapter 5 Assignment MindTap-Cengage Learning
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what is true about finding the x®° Chapter 5 Assignment MindTap-Cengage Learning · ece Secure httpsing x.htmi?deploymentld 55165121505348353947115 MINDTAP Chapter 5 Assignment The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 8.80%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate You want to invest $18,000 and are looking for safe investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 8% that is compounded semiannually, what is the effective rate of return that you will earn from this investment 8.066% 8.343% o 8.245% 8.160% Suppose you decide to deposit $18,000 in a savings account that pays a nominal rate of 11%, but interest is dally. Based on a 365-day year, how much would you have in the account after 12 months? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) O $21,097.30 O $20,092.67 $19,690.82 O $20,896.38 MacBook A esc F) F2 FSExplanation / Answer
Effective Rate of Return
Effective Rate of Return is calculated by using the following formula
Effective Rate of Return = [ {(1 + r) n }- 1] x 100
Where “r” = 8% / 2 = 4%
n = 2 Years
Therefore, The Effective Rate of Return = [ {(1 + r) n }- 1] x 100
= [ {(1 + 0.04) 2}- 1] x 100
= [1.0816 – 1] x 100
= 8.160%
“Effective Rate of Return = 8.160%”
Amount in the account after 12 Months
Firstly, calculate the Effective Rate of Return of 11% compounded daily
Effective Rate of Return = [ {(1 + r) n }- 1] x 100
Where “r” = 11% / 365 Days = 0.03014%
n = 365 periods
Therefore, The Effective Rate of Return = [ {(1 + r) n }- 1] x 100
= [ {(1 + 0.0003014) 365}- 1] x 100
= [1.1163 - 1] x 100
= 11.63%
The Amount in the account after 12 Months = Deposit Amount + Interest for 12 months
= $18,000 + [$18,000 x 11.63%]
= $18,000 + 2,092.67
= $20,092.67
“Therefore, The Amount in the account after 12 Months = $20,092.67”
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