Question

In: Finance

Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and...

Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and earn interest for exactly four years, after which she will use it as a deposit on her new house. She has researched the interest market and come up two good introductory options to choose from:

  1. Sum bank- 2.7% interest for the first year, then 1.15 % for the next three years.
  2. Certain bank- 2.1% for the first two years and then 0.4% for the next two years.

Assume that interest is paid monthly and that the returns occur after tax. Task:

  1. Calculate the amount of interest Sandy will have earned under each scenario.
  2. Taking into consideration the amount of interest earned over the 4 years, calculate the annual rate of return for each product as a percentage.
  3. Explain why your answers in question b better represents an APR or an EAR.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and...
Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and earn interest for exactly four years, after which she will use it as a deposit on her new house. She has researched the interest market and come up two good introductory options to choose from: Sum bank- 2.7% interest for the first year, then 1.15 % for the next three years. Certain bank- 2.1% for the first two years and then 0.4% for the...
Sandy McPherson, a university study, has inherited $90,000
Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and earn interest for exactly four years, after which she will use it as a deposit on her new house. She has researched the interest market and come up two good introductory options to choose from: 1) Sum bank- 2.7% interest for the first year, then 1.15 % for the next three years. 2) Certain bank- 2.1% for the first two years and then 0.4% for the...
Annette has just inherited $180,000. She invests this money at a rate of return of 6.19%...
Annette has just inherited $180,000. She invests this money at a rate of return of 6.19% per year compounded quarterly. After some period of time, she purchases an annuity that pays $3080 at the beginning of each month for 17 years. Investing the $180,000 today, how many years until Annette can purchase her annuity? No units are required.
Sophia inherits inherited money from her grandparents. She inherits $100,000 from her grandparents, today. She has...
Sophia inherits inherited money from her grandparents. She inherits $100,000 from her grandparents, today. She has exactly 20 years to retire and she decided to put the entire amount into 20 years, 4% annual interest annuity. A) Assume that she did not deposit any additional amount into this account, compute your account balance by the time she retires. Please compute the problem using a scientific calculator (not a financial one) using the appropriate formulas and show your calculations step by...
You have just inherited $590,000. You plan to save this money and continue to live off...
You have just inherited $590,000. You plan to save this money and continue to live off the money that you are earning in your current job. If you can invest the money in a bond that pays 4.03 percent interest annually, how long will it be before your inheritance is worth $1 million? (If you solve this problem with algebra round intermediate calculations to 5 decimal places, in all cases round your final answer to 2 decimal places, e.g. 8.72.)...
Taylor has just received an insurance settlement of $58,400. She wants to save this money until...
Taylor has just received an insurance settlement of $58,400. She wants to save this money until her oldest daughter goes to college. Taylor can earn an average of 5.5 percent, compounded annually, on this money. How much will she have saved for her daughter's college education if her daughter enters college 14 years from now? a. $123,579.74 b. $108,153.58 c. $82,990.77 d. $187,302.09 e. $110,459.16
Elaine has just received an insurance settlement of $25,000. She wants to save this money until...
Elaine has just received an insurance settlement of $25,000. She wants to save this money until her daughter goes to university. If she can earn an average of 6.5%, compounded annually, how much will she have saved when her daughter enters university eight years from now?
Renee Carter has decided to study medicine at a university in Melbourne. She has arranged to...
Renee Carter has decided to study medicine at a university in Melbourne. She has arranged to stay with a family on the north side of the city. In order to get to and from the university, she decides she will need to buy a car, costing a maximum of $10 000. She searches the Internet and comes across the following at Car City: MAZDA 323 Red, 4D Sedan; 5 SP Manual; 2.0 Ltr, 4 cycl; odometer 153 293. Required ?A....
Multiple compounding periods: Samantha is looking to invest some money, so that she has $5,500 at...
Multiple compounding periods: Samantha is looking to invest some money, so that she has $5,500 at the end of three years. Which investment should she make given the following choices: a. 4.2% compounded daily b. 4.9% compounded monthly c. 5.2% compounded quarterly d. 5.4% compounded annually
What will be most cost effective? When looking for ways to save money, while getting the...
What will be most cost effective? When looking for ways to save money, while getting the best product available, we look at the best outcome of costs vs. benefits. or in the terms of what we are studying in this module, the highest rate of return (ROR). Simply stated, the definition of ROR is the discount rate that makes the net present value of an investment zero. Therefore, the greater the discount rate, the greater the return on the investment....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT