k. Five banks offer nominal rates of 9% on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and E pays daily. Assume 365 days in a year. 1. What effective annual rate does each bank pay? If you deposit $6,000 in each bank today, how much will you have in each bank at the end of 1 year? 2 years? Round your answers to two decimal places. A B C D E EAR % % % FV after 1 year 24 24 24 FV after 2 years 24 24 $4 2. If the TVM is the only consideration, what nominal rate will cause all of the banks to provide the same effective annual rate as Bank A? Round your answers to two decimal places. B. Nominal rate % % % series of deposits - annually for A, semiannually for B,quarterly for C, monthly for D, 3. Suppose you don't have the $6,000 but need it at the end of 1 year. You plan to make and daily for E – with payments beginning today. How large must the payments be to each bank? Round your answers to the nearest cent. B Payment 24 $4 $4 $ 4. Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks? It is more likely that an investor would prefer the bank that compounded 8 frequently. 1. Suppose you borrow $15,000. The interest rate is 10%, and it requires 4 equal end-of-year payments. Set up an amortization schedule that shows the annual payments, interest payments, principal repayments, and beginning and ending loan balances. Round your answers the nearest cent. If your answer is zero, enter "0". Beginning Repayment Ending Year Balance Payment Interest of Principal Balance 1
k. Five banks offer nominal rates of 9% on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and E pays daily. Assume 365 days in a year. 1. What effective annual rate does each bank pay? If you deposit $6,000 in each bank today, how much will you have in each bank at the end of 1 year? 2 years? Round your answers to two decimal places. A B C D E EAR % % % FV after 1 year 24 24 24 FV after 2 years 24 24 $4 2. If the TVM is the only consideration, what nominal rate will cause all of the banks to provide the same effective annual rate as Bank A? Round your answers to two decimal places. B. Nominal rate % % % series of deposits - annually for A, semiannually for B,quarterly for C, monthly for D, 3. Suppose you don't have the $6,000 but need it at the end of 1 year. You plan to make and daily for E – with payments beginning today. How large must the payments be to each bank? Round your answers to the nearest cent. B Payment 24 $4 $4 $ 4. Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks? It is more likely that an investor would prefer the bank that compounded 8 frequently. 1. Suppose you borrow $15,000. The interest rate is 10%, and it requires 4 equal end-of-year payments. Set up an amortization schedule that shows the annual payments, interest payments, principal repayments, and beginning and ending loan balances. Round your answers the nearest cent. If your answer is zero, enter "0". Beginning Repayment Ending Year Balance Payment Interest of Principal Balance 1
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 2STP
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Transcribed Image Text:k. Five banks offer nominal rates of 9% on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and E pays daily. Assume 365 days in a year.
1. What effective annual rate does each bank pay? If you deposit $6,000 in each bank today, how much will you have in each bank at the end of 1 year? 2 years? Round your
answers to two decimal places.
A
E
EAR
%
%
%
%24
24
FV after 1 year
$
$4
2$
$4
FV after 2 years
%24
2$
$
2. If the TVM is the only consideration, what nominal rate will cause all of the banks to provide the same effective annual rate as Bank A? Round your answers to two decimal
places.
A-Z
office
Nominal rate
%
%
%
%
3. Suppose you don't have the $6,000 but need it at the end of 1 year. You plan to make a series of deposits – annually for A, semiannually for B, quarterly for C, monthly for D,
and daily for E– with payments beginning today. How large must the payments be to each bank? Round your answers to the nearest cent.
A
D
Payment
$4
24
2$
4. Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks?
It is more likely that an investor would prefer the bank that compounded
O frequently.
I. Suppose you borrow $15,000. The interest rate is 10%, and it requires 4 equal end-of-year payments. Set up an amortization schedule that shows the annual payments, interest
payments, principal repayments, and beginning and ending loan balances. Round your answers to the nearest cent. If your answer is zero, enter "0".
A
Beginning
Repayment
Ending
Year
Balance
Payment
Interest
of Principal
Balance
1
%24
$4
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