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?
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.
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