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Question 1 Use the digits of your birthday as the amount of your initial investment My Birthday is 7/15 is $715 (i., 6/25 is $625), calculate the...

Question 1

Use the digits of your birthday as the amount of your initial investment My Birthday is 7/15 is $715(i.e., 6/25 is $625), calculate the value of this investment after 10 years at 3.5% APR for interest compounded yearly, quarterly, monthly, and daily. What do you notice?

Question 2

Choose two of the following statements and determine whether each makes sense. Support your reasoning with calculations.

1. Assuming that a 3-year car loan has a lower interest rate than a 5-year loan, people should always select the 3-year loan.

2. After depositing $1,500 in an account with an APR of 4%, my balance at the end of the first year was $(1,500)*(1.04).

3.  I have $1,000 to invest. One account will pay 5% interest the first year and 10% interest the second year. Another account will pay 10% interest the first year and 5% interest the second year. It does not matter which account I choose, because I will end up with the same amount of money either way.

4.  I can put away $1,000 towards retirement today or $1,000 ten years from now. Either way I have invested the same amount so I will end up with the same amount when I retire in 25 years.

5.  I like to keep all my money, so I pay only the minimum required payment on my credit card.

6.  If I can afford to pay for a car out of pocket, I should still take out a loan and make only the monthly minimum payments. That way, the money in my savings account will continue to grow.

7.  Bank A compounds interest once a month, and has no charge for a checking account. Bank B compounds interest every day, but there is a $2/month charge for a checking account. Both banks yield 1.2% APR. Bank A is always the best deal.

8.  If it takes 20 years for a $100 dollar investment to double in value at a certain bank, then it should also take 20 years for a $500 investment to double in value.

Top Answer

Question 1 Compouneded yearly = 715*(1+3.5%)^10 = $1008.58 Compunded quarterly = 715*(1+3.5%/4)^(10*4) = $1013.09 Compounded... View the full answer

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