# A depositor places 5000 in a credit union deposit

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91.028,1(\$=-××8.A depositor places \$5,000 in a credit union deposit account for a full year but then withdraws \$1000 after 270 days. At the end of the year, the credit union pays her \$300 in interest. What is this depositor’s daily average balance and APY?
9.A commercial loan extended to CIBER-LAND Corporation for \$2.5 million assesses an interest charge of \$350,000 up front. Using the discount method of calculating loan rates, what is the effective interest rate on this loan? Suppose that instead of deducting the interest owed up front, the company’s lender agrees to extend the full \$2.5 million and add the amount of interest owed to the face of CIBER’s note. What, then is the loan’s effective interest rate?
EXCEL 10. Bill Evans won a cash prize of \$100,000 in a charity fund-raising event. He decided to invest the money for the next 5 years to help pay for his son’s college education. His financial advisor gave him two options for investing. Option A is invest all of money in stock mutual fund tied to the S&P 500. Option B is to buy a speculative stock, Advent-2 that has paid no dividends with 50 percent of Bill’s winnings and a 10-year T-note--a zero-coupon security--with the remainder. The advisor gave Bill three potential scenarios that could affect the value of these two investment portfolios.6-9
Chapter 06 - Measuring and Calculating Interest Rates and Financial Asset PricesScenario 1: the S&P 500 will appreciate 10 percent in each of the first two years, and then grow at a 3 percent rate in the last 3 years, during which time the price of Avent-2 is expected to double in the first year and remain flat in the last 4 years, while the yield on the T-note falls from its current 4 percent to 2 percent.Scenario 2: the S&P 500 will appreciate 10 percent in each of the upcoming 5 years, Advent-2 will increase by 20 percent each year, and the yield on the T-note will remain unchanged at 4 percent.Scenario 3: the S&P 500 will appreciate 3 percent in the first 2 years and 5 percent in subsequent 3 years, while the price of Advent-2 will fall by 10 percent in of each the first 2 years and then remain flat thereafter, as the yield on the T-note rises from 4 to 7 percent.Use a spreadsheet to compute the future value after five years of the \$100,000 investment under Option A and Option B for each of the three scenarios. Can you say whether Option A or Option B is better investment strategy?ANSWER: Scenario 1Option AAppreciate Rate on S&P 500The Stock PriceBeginning\$100,000Year 110%\$110,000Year 210%\$121,000Year 33%\$124,630Year 43%\$128,369Year 53%\$132,220Total value of Investment\$132,220Option BAdvent-2The Stock PriceT-NoteT-Note PriceBeginning\$50,000\$50,000Year 1100%\$100,0004%\$52,000Year 20%\$100,0002%\$53,040Year 30%\$100,0002%\$54,101Year 40%\$100,0002%\$55,183Year 50%\$100,0002%\$56,286Total value of Investment\$156,286Under Scenario 1, the future value of option B is higher than the future value of option A.