Darlene-P-GBS132_Lesson_4_Exercise_Template_Final (2)

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Rio Salado Community College *

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132

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Accounting

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Jun 5, 2024

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GBS132 Lesson 4 Exercise Template Name In this exercise, you will evaluate types of banking accounts and calculate interest. Instructions: 1. Complete the assignment using the template provided. There are three parts. 2. Be sure to answer all questions Part 1: Case Study Jack and Lily earn $14,727 a month in combined income. After contributing to their employer 401(k) retirement plan and having their insurance and taxes deducted, they have take-home pay of $7,594 a month. After all monthly expenses are paid, they have a $1,317 surplus. Questions: a. How much do they need to have for an emergency fund? b. What type of account should they have it in, and how much interest will it earn? c. What type of account would you tell them to invest in if they wanted to save money after filling up their emergency fund? Explain your answer. Answer: After all monthly expenses are paid, Jack and Lilly need to have at least 6 months' worth of income saved for their emergency fund. They need to have at least $45,564 for an emergency fund. The reason for an emergency fund is to cover expenses such as medical bills, car repairs, or any other unforeseen circumstances. The emergency fund will help pay for those monthly expenses. They should have their emergency fund into a savings account with high interest rates. Some savings accounts that would be best for the emergency fund are CDs, money markets accounts, and high-yield savings accounts. A high-yield savings account is the best option, since they offer better interest rates and no monthly fees. Opening another high-yield savings account can help them to save more money and earn higher interest rates. These accounts typically have lower fees, FDIC insurance, and higher annual percentage yields (APYs) than traditional savings accounts. This can help Jack and Lilly maximize their savings and help them to potentially grow their wealth over time. Part 2: Checking Account Comparison 1. Visit the following sites, which offer checking accounts: Page 1

GBS132 Lesson 4 Exercise Template a. Wells Fargo – www.wellsfargo.com – Everyday Checking Account b. National Bank of Arizona – www.nbarizona.com – Anytime Banking Account c. Arizona Federal Credit Union – www.arizonafederal.org – Checking Plus Account 2. Complete the Checking Account Comparison Chart and fill in all the required information for each account using a short phrase or sentence for each characteristic. Checking Account Comparison Chart Features Wells Fargo Everyday Checking National Bank of Arizona Anytime Checking Arizona Federal Credit Union Checking Plus Minimum daily balance required to waive monthly service fee $500 $250 $0 Monthly Service Fee if not waived $10 $10 $0 Minimum Deposit to Open Account $25 $50 $20 Interest No No 0.11% Online Banking Free Free Free ATM Fee at Bank Owned ATMs 0 0 0 ATM Fee at Out of Network ATMs $2.50 $3, 1 fee is waived per statement month $2 Overdraft Protection Available 0 Yes Yes Overdraft Fee $35 $5 $35 Non-Sufficient Funds Fee (NSF) 0 $35 0 Online Bill Pay Free Free FREE Send Money with Zelle Free Free FREE Mobile Check Deposit Free Free FREE 3. Answer this question: Which one would you choose to patronize? Explain your answer using details from the site. Cite all references you use in APA format using an in-text citation and reference. Answer: Page 2

GBS132 Lesson 4 Exercise Template I would choose to patronize the Arizona federal credit union. It is more appealing to me and there are no monthly fees. The interest can also be used to boost my account balance. "At Arizona Financial, we truly believe in the value of free.” I believe choosing this bank would help grow my savings even further. Arizona Federal Credit Union overall seems like a smart financial decision that I can benefit from. References Arizona Financial Credit Union. (2024). Checking Account. https://www.arizonafinancial.org/checking-account Part 3: Calculating Interest 1. Answer the following questions in the provided template. 2. Be sure to show your work for each question. a. If you put $6,000 into a savings account that pays interest at the rate of 4% a year, how much would you have after five years? Answer: FV=P(1+r)^n FV=6,000(1+0.04)^5 FV=6,000(1.04)^5 FV=6,000(1.21) FV=$7,260 You would have $7,260 after 5 years b. If you put $6,000 into a savings account that pays interest at the rate of 8% a year, how much would you have after five years? Answer: FV=P(1+r)^n FV=6,000(1+0.08)^5 Page 3

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GBS132 Lesson 4 Exercise Template FV=6,000(1.08)^5 FV=6,000(1.469) FV=$8,814 You would have $8,814 after 5 years c. If you put $6,000 into a savings account that pays interest at the rate of 12 percent a year, how much would you have after five years? Answer:FV=P(1+r)^n FV=6,000(1+0.12)^5 FV=6,000(1.12)^5 FV=6,000(1.76) FV=$10,560 You would have $10,560 after 5 years d. How much would you earn in interest for saving in a $10,000 Certificate of Deposit that matures in 7 years and earns 5% interest? Answer: FV=PV(1+i)^n FV=10,000(1+0.05)^7 FV=10,000(1.05)^7 FV=10,000(1.4071) FV=14,071 FV-PV= Interest Value 14,071-10,000= 4,071 You would earn $4,071 in interest. e. How much would you earn in interest for saving in a $10,000 Certificate of Deposit that matures in 5 years and earns 14% interest? Answer: FV=PV(1+i)^n FV=10,000(1+0.14)^5 FV=10,000(1.14)^5 FV=10,000(1.9254) FV= 19,254 FV-PV= Interest Value 19,254-10,000= 9,254 You would earn $9,254 in interest. f. How long does it take your money to double if it is invested at 4%? Answer: Use the rule of 72 72/4=18 It would take 18 years for your money to double if invested at 4%. Page 4

GBS132 Lesson 4 Exercise Template g. If you put $6,000 each year into a savings account that pays interest at the rate of 4% a year, how much would you have after five years? Answer: pmt[(1+i)^n/i-1/i] 6,000[(1+0.04)^5/0.04-1/0.04 6,000[(1.04)^5/0.04-1/0.04 6,000[(1.2167)/0.04-1/0.04] 6,000[(30.4175)-1/0.04] 6,000[(30.4175)-25] 6,000(5.4175) = 32,505 h. If interest is paid and compounds quarterly at 5%, what is the effective rate? Answer: The effective rate is 5.09% Page 5