**Interest Compounding Comparison Exercise****Introduction:**This exercise evaluates the future value of investments with two banks offering different interest rates and compounding frequencies. Understanding which option yields a higher return can guide financial decision-making.**Scenario:**- **First National Bank** offers 5.3% interest compounded semiannually.- **Second National Bank** offers 6% interest compounded monthly.**Instructions:**a. **Calculate the Future Value with First National Bank** - Assume an investment of $1. - Perform calculations without rounding intermediate results. - Provide the final answer rounded to five decimal places. - **Future value for First National Bank:** - Input your result here: $ _______b. **Calculate the Future Value with Second National Bank** - Assume an investment of $1. - Perform calculations without rounding intermediate results. - Provide the final answer rounded to five decimal places. - **Future value for Second National Bank:** - Input your result here: $ _______c. **Determine the Better Investment** - Identify which bank offers the higher effective annual rate. - Choose one of the following options: - ⭕ First National Bank - ⭕ Second National Bank**Objective:**This exercise helps in analyzing the impact of different compounding methods on investment returns, highlighting the importance of understanding effective interest rates in financial planning.

FV =PV(1+rm)nm n = no of years m = no of compounding in year

First National Bank pays 5.3% interest compounded semiannually. Second National Bank pays 6% interest, compounded monthly. a. Calculate the future value for each dollar invested in First National (Assume you invest $1). (Do not round intermediate calculations. Round your answer to 5 decimal places.) Future value b. Calculate the future value for each dollar invested in Second National (Assume you invest $1). (Do not round intermediate calculations. Round your answer to 5 decimal places.) Future value c. Which bank offers the higher effective annual rate? O First National Bank O Second National Bank

First National Bank pays 5.3% interest compounded semiannually. Second National Bank pays 6% interest, compounded monthly. a. Calculate the future value for each dollar invested in First National (Assume you invest $1). (Do not round intermediate calculations. Round your answer to 5 decimal places.) Future value b. Calculate the future value for each dollar invested in Second National (Assume you invest $1). (Do not round intermediate calculations. Round your answer to 5 decimal places.) Future value c. Which bank offers the higher effective annual rate? O First National Bank O Second National Bank

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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Similar questions

A three-year bank CD paying 6.82 percent compounded monthly. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.) Effective annual rate % A three-year bank CD paying 7.32 percent compounded annually. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)
The First National Bank is offering a 4 year certificate of deposit (CD) at 4% interest compounded quarterly; Second National Bank is offering a 4 year CD at 5% interest compounded annually. (Round your answers to two decimal places.) (a) If you were interested in investing $6,000 in one of these CDs, calculate the compound amount (in $) of each offer. (Use Table 11-1.) First National Bank$ Second National Bank$ (b) What is the annual percentage yield of each CD? First National Bank %Second National Bank % (c) If Third National Bank has a 4 year CD at 4.5% interest compounded monthly, use the compound interest formula to calculate the compound amount (in $) of this offer. $ ????????
4. A bank CD that pays 7.38 percent compounded semiannually. (Round answer to 2 decimal places, e.g. 15.25%.) what is the Effective annual rate %?
Mf3. : An entity took UAH 100,000 loan for 5 at 26% of annual interest rate. Interests are paid annually. A bank is using annuity due scheme. Interest revenue for a bank in period 1 is: An entity took UAH 100,000 loan for 5 at 26% of annual interest rate. Interests are paid annually. A bank is using annuity due scheme. Principal, paid in the fourth period, is: Outstanding loan amount is USD 17,000.00. Annuity is USD 4,315.27, interest rate is 18%. The amount of principal, paid in the given period is: Outstanding loan amount is USD 22,000.00. Annual interest rate is 11%. Interest is paid at the end of each year. In the given period bank received USD 4,300.00 of principal payment. The annuity amount is:
3. Answer both A and B questions A. What are the differences between the simple interest and compound interest? (Elaborate, minimum of three sentences). B. An investor deposited OMR 9,000 into an account paying 8% annual interest compounded quarterly. (Use the compounded interest formula). Calculate the following. 1. How much money will be in the account after 5 years? 2. How much money will be in the account after 9 years? 3. How much money will be in the account after 3 years? Answer:
What is the bond, bond valuation, and interest rates of CVS in 2020?
Bank 1 is offering interest rate of 8.4% (compounds semiannually) on fixed deposits. Beck 2 is offering interest rate of 8.3% (compounds monthly) on fixed deposits. An investor invested amount of $15,000 for five years in the bank that is offering highest effective annual rate. What is the accumulated amount at the end of five years? a $22,683 b. $22.634 c. $22.451 d $22.982
The amount of simple interest on a deposit varies jointly with the principal and the time in days. If $17.85 is earned on a deposit of $3500 for 12 days, how much interest would be earned on a deposit of $3700 for 20 days? ... The deposit would earn S in interest. (Simplify your answer. Round to the nearest cent as needed.)
One bank offers to loan you money at an interest rate of 12% compounded quarterly, and another bank offers to loan you money at 11.8% compounded continuously. Which loan would you prefer, and why?
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