2. Simple versus compound interest Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question. Olivia deposited $800 at her local credit union in a savings account at the rate of 6.2% paid as simple interest. She will earn interest once a year for the next 7 years. If she were to make no additional deposits or withdrawals, how much money would the credit union owe Olivia in 7 years? $852.68 $1,147.20 $149.60 $1,218.88 Now, assume that Olivia’s credit union pays a compound interest rate of 6.2% compounded annually. All other things being equal, how much will Olivia have in her account after 7 years? $849.60 $75.57 $1,147.20 $1,218.88 Before deciding to deposit her money at the credit union, Olivia checked the interest rates at her local bank as well. The bank was paying a nominal interest rate of 6.2% compounded quarterly. If Olivia had deposited $800 at her local bank, how much would she have had in her account after 7 years? $81.04 $1,230.63 $850.77 $149.60
2. Simple versus compound interest Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question. Olivia deposited $800 at her local credit union in a savings account at the rate of 6.2% paid as simple interest. She will earn interest once a year for the next 7 years. If she were to make no additional deposits or withdrawals, how much money would the credit union owe Olivia in 7 years? $852.68 $1,147.20 $149.60 $1,218.88 Now, assume that Olivia’s credit union pays a compound interest rate of 6.2% compounded annually. All other things being equal, how much will Olivia have in her account after 7 years? $849.60 $75.57 $1,147.20 $1,218.88 Before deciding to deposit her money at the credit union, Olivia checked the interest rates at her local bank as well. The bank was paying a nominal interest rate of 6.2% compounded quarterly. If Olivia had deposited $800 at her local bank, how much would she have had in her account after 7 years? $81.04 $1,230.63 $850.77 $149.60
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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2. Simple versus compound interest
Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question.
Olivia deposited $800 at her local credit union in a savings account at the rate of 6.2% paid as simple interest. She will earn interest once a year for the next 7 years. If she were to make no additional deposits or withdrawals, how much money would the credit union owe Olivia in 7 years?
$852.68
$1,147.20
$149.60
$1,218.88
Now, assume that Olivia’s credit union pays a compound interest rate of 6.2% compounded annually. All other things being equal, how much will Olivia have in her account after 7 years?
$849.60
$75.57
$1,147.20
$1,218.88
Before deciding to deposit her money at the credit union, Olivia checked the interest rates at her local bank as well. The bank was paying a nominal interest rate of 6.2% compounded quarterly. If Olivia had deposited $800 at her local bank, how much would she have had in her account after 7 years?
$81.04
$1,230.63
$850.77
$149.60
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