Question

In: Statistics and Probability

Under certain​ conditions, Swiss banks pay negative interest they charge you.​ (You didn't think all that...

Under certain​ conditions, Swiss banks pay negative

interest they

charge you.​ (You didn't think all that secrecy was​ free?) Suppose a bank​ "pays"

minus−3.93.9​%

interest compounded annually. Find the compound amount for a deposit of

​$280 comma 000280,000

after

8

years.

Solutions

Expert Solution

SOLUTION:

From given data,

Under certain​ conditions, Swiss banks pay negative interest they  charge you.​ (You didn't think all that secrecy was​ free?) Suppose a bank​ "pays" −3.9​%  interest compounded annually. Find the compound amount for a deposit of ​$280,000  after 8 years.

Where,

Principal amount (p) = $ 280000

Interest rate (r) = -3.9% = (compounded annually)

Time (t) = 8 years

Number of compounding periods per year = n =1

Here negative interest simply means bank is charging a fee for the safety of our deposit and so in case of negative interest bank takes compound interest on deposit rather then giving to us.

So,

Using compound interest formula

Compounded interest only = I = P (1 + r/n) (nt) - P

I = $ 280000 (1 + 3.9%/1) (1*8) - $ 280000

I = $380261.55 - $ 280000

I = $100261.55

Total compound amount = $100261.55

orchestra answered 1 year ago
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