1. An investor purchases 400 shares at $21.40 a share, holds the stock for 30 weeks,...

1. An investor purchases 400 shares at $21.40 a share, holds the stock for 30 weeks, and then sells the stock for $24.60 a share. Use the commission schedule below from Company A to find the annual rate of interest earned by the investment.

Company A

Principal

Under $3,000

$3,000-$10,000

Over $10,000

Commission

$25 + 1.8% of principal

$37 + 1.4% of principal

$107 + 0.7% of principal

2. Find the annual percentage yield (APY) for money invested at an annual rate of (a) 3.05% compounded quarterly. (b) 2.95% compounded continuously. As an investor what is the preferable interest plan?

Solutions

Expert Solution

1.Annual rate of interest earned by the investment

Annual rate of interest earned by the investment = 18.86%

2. Annual Percentage Yield (APY)

The Annual Percentage Yield of quarterly compounding is 3.085% which is higher than the Annual Percetage Yield of continuous compounding of 2.994% . Hence, the investor should prefer quarterly compounding of 3.05% as the return is higher.

jeff jeffy answered 1 year ago

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