Question

You are the financial manager of a large company and you must recommend the best investment to the board of directors.

1- (30 points) If the firm wants to invest 100,000 €, which of the following options is the most interesting one:

a) To invest in a bank account that offers an annual simple interest rate of 7%, for 10 years

b) To invest in a bank account that offers an annual compound interest rate of 6%, for 10 years

The bank pays interests once per year.

2- (40 points) If you decide the option of compound interest rate, what is the total amount after 10 years if the interests are paid: a. Semesterly

b. Quarterly c. Monthly d. Weekly

Compare the results and choose the best option for your firm.

3- (30 points) How much money should the company invest today, in a bank account that offers a compound monthly interest rate of 0.6%, to get the same amount than in question 1b) but in seven years’ time?

(Im sorry can you please answer question 3 only i had to put all the questions because they are related to each other).

Thank you

Answer 1