Envisioned that you have served a business manager ofMedia World for over 2 year
ID: 3094999 • Letter: E
Question
Envisioned that you have served a business manager ofMedia World for over 2 years. You have noticed that for the last 12months the business has regularly has cash assests of $20,000 ormore at the end of each month. You have found a 6-month certificateof deposit that pays 6% compounded monthly. To obtain this rate ofinterest, you must invest a minimum of $2,000. You have also founda high interest saving account that pays 3% compounded daily. Basedon the cash position of the business at this time, assume that youdecide to invest $4,000. 1) Assume that you will invest the full amount in acertificate deposit. a) What would be the future value of the CD at the end of theinvestment term? b) How much interest would the investment earn for theperiod? c) What would be the effective rate of theinvestment? 2) Assume that you decide to invest the $4,000 in the highinterest savings account. a). What future value would you expect to receive at the endof 6 months. b) How much interest would the investment earn for theperiod? c) What would be the effective rate of the investment? Envisioned that you have served a business manager ofMedia World for over 2 years. You have noticed that for the last 12months the business has regularly has cash assests of $20,000 ormore at the end of each month. You have found a 6-month certificateof deposit that pays 6% compounded monthly. To obtain this rate ofinterest, you must invest a minimum of $2,000. You have also founda high interest saving account that pays 3% compounded daily. Basedon the cash position of the business at this time, assume that youdecide to invest $4,000. 1) Assume that you will invest the full amount in acertificate deposit. a) What would be the future value of the CD at the end of theinvestment term? b) How much interest would the investment earn for theperiod? c) What would be the effective rate of theinvestment? 2) Assume that you decide to invest the $4,000 in the highinterest savings account. a). What future value would you expect to receive at the endof 6 months. b) How much interest would the investment earn for theperiod? c) What would be the effective rate of the investment?Explanation / Answer
Investment Option B: 3% daily 0.008333% per (based on all 30 day months) 1) a,b) At 6 months, $20000 in A gets this: 20000(1+0.005)6 = 20607.55, Int = 607.55 c) The rate after 6 months is 607.55/20000 * 2 * 100 =6.076% . The investment, if held for a full yearwould yield [(1+0.005)12 -1] * 100 = 6.168% (How these wouldtypically be listed) 2) a,b) At 6 months (180 days) B gets this: 4000 (1+.00008333)180 = 4000 (1.01511) = 4060.45, a gain of60.45 c) The rate after 6 months is 60.45/4000 * 2 * 100 =3.023% If held for a full year, the yield is[(1.00008333)360 - 1] * 100 = 3.045%Related Questions
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