A customer has 3 application options and wants to know which is the best option. - Savings that yield 17.0% a.m. - Short-term fund that yields 72.8% per quarter - CBD that yields 700% p.a.
A customer has 3 application options and wants to know which is the best option. - Savings that yield 17.0% a.m. - Short-term fund that yields 72.8% per quarter - CBD that yields 700% p.a.
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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Question
21 - A customer has 3 application options and wants to know which is the best option.
- Savings that yield 17.0% a.m.
- Short-term fund that yields 72.8% per quarter
- CBD that yields 700% p.a.
Expert Solution
Step 1
As the given options are on different time lines, Interest rates should be converted to per annum basis to be comparable with each other
1) Savings that yield 17.0% per month
Annual interest rate
= [(1 + interest rate)n ] -1 *100
= [ 1.17(12) ] -1 *100
= (6.580067 -1 ) *100
= 5.580067 *100
= 558.0067 % per annum
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