Sarah is willing to invest $30,000 for three years, and is an economically rational investor. She has identified three investment alternatives (L, M, and P) that vary in their method of calculating interest and in the annual interest rate offered. Since she can only make one investment during the three-year investment period, complete the following table and indicate whether Sarah should invest in each of the investments. Note: When calculating each investment’s future value, assume that all interest is earned annually. The final value should be rounded to the nearest whole dollar. Investment Interest Rate and Method Expected Future Value Make this investment? L 7% compound interest M 6% simple interest P 11% compound interest
Sarah is willing to invest $30,000 for three years, and is an economically rational investor. She has identified three investment alternatives (L, M, and P) that vary in their method of calculating interest and in the annual interest rate offered. Since she can only make one investment during the three-year investment period, complete the following table and indicate whether Sarah should invest in each of the investments. Note: When calculating each investment’s future value, assume that all interest is earned annually. The final value should be rounded to the nearest whole dollar. Investment Interest Rate and Method Expected Future Value Make this investment? L 7% compound interest M 6% simple interest P 11% compound interest
Chapter11: Investor Losses
Section: Chapter Questions
Problem 36P
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Sarah is willing to invest $30,000 for three years, and is an economically rational investor. She has identified three investment alternatives (L, M, and P) that vary in their method of calculating interest and in the annual interest rate offered. Since she can only make one investment during the three-year investment period, complete the following table and indicate whether Sarah should invest in each of the investments.
Note: When calculating each investment’s future value , assume that all interest is earned annually. The final value should be rounded to the nearest whole dollar.
|
Investment
|
Interest Rate and Method
|
Expected Future Value
|
Make this investment?
|
|---|---|---|---|
| L | 7% |
|
|
| M | 6% simple interest |
|
|
| P | 11% compound interest |
|
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