Week 3 solutions

Week 3 solutions - Week 3 Solutions Chapter 2 5. (a) EAR =...

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Week 3 Solutions Chapter 2 5. (a) EAR = ( 1 + k m ) m - 1 Stated rate EAR 1 10.00 10.00 2 9.75 9.99 3 9.50 9.84 4 9.25 9.65 5 9.00 9.41 (b) Annual Percentage Rate (APR) is another term for stated rate. (c) 1 yr 3 yrs 5 yrs 1 $55,000 $66,550 $80,526 2 $54,994 $66,528 $80,480 3 $54,922 $66,267 $79,955 4 $54,826 $65,921 $79,261 5 $54,704 $65,483 $78,385 (d) Two other factors might matter. One is service charges on the account. Financial institutions normally give lower interest rates on accounts with more free services, such as free chequing. Second, if she may want to withdraw part of the money or invest more money, she should check the fine print on the interest rates. The minimum balance upon which interest is calculated may be different between the accounts; so the interest actually received may not be as calculated in part (c). For example, if the minimum balance on an account against which interest is calculated is the lowest balance during a month, there will be no interest earned on anything deposited during the month, regardless of how frequently interest is compounded. 10.
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Week 3 solutions - Week 3 Solutions Chapter 2 5. (a) EAR =...

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