Investment 1: Investing that $120,000 in a saving account for 15 years. There are two banks forher choice. Bank A pays a rate of return of 8.5% annually, compounding semi-annually. Bank Bpays a rate of return of 8.45 annually, compounding quarterly.Investment 2: Putting exactly an equal amount of money into ANZ Investment Fund at the endof each month for 15 years to get 330 000 she still shorts of now. The fund is offering a rate ofreturn 7% per year, compounding monthly.Required:a) Identify which Bank should Molly choose in Investment 1 by computing the effective annualinterest rate (EAR)? b) Calculate the amount of money Molly would accumulate in Investment 1 after 15 years if shechooses Bank B? c) How much is the annual interest rate, assuming compounding annually Molly should aim at ifshe chooses to invest her $120 000 in a saving account to get the $450,000 ready in just 10 yearsfrom now? d) Calculate the monthly payment Molly needs to contribute into ANZ Investment Fund to get$330,000 after 15 years in Investment 2? 3e) In investment 2, if Molly changes to contribute $1200/month to that super fund at thebeginning of each month, how much money she would have in ANZ Investment fund after 15years? f) Molly is offered an investment that will pay $12 000 each year forever. How much should shepay for this investment if the rate of return 12% applies?
Investment 1: Investing that $120,000 in a saving account for 15 years. There are two banks for
her choice. Bank A pays a
pays a rate of return of 8.45 annually, compounding quarterly.
Investment 2: Putting exactly an equal amount of money into ANZ Investment Fund at the end
of each month for 15 years to get 330 000 she still shorts of now. The fund is offering a rate of
return 7% per year, compounding monthly.
Required:
a) Identify which Bank should Molly choose in Investment 1 by computing the effective annual
interest rate (EAR)?
b) Calculate the amount of money Molly would accumulate in Investment 1 after 15 years if she
chooses Bank B?
c) How much is the annual interest rate, assuming compounding annually Molly should aim at if
she chooses to invest her $120 000 in a saving account to get the $450,000 ready in just 10 years
from now?
d) Calculate the monthly payment Molly needs to contribute into ANZ Investment Fund to get
$330,000 after 15 years in Investment 2?
3
e) In investment 2, if Molly changes to contribute $1200/month to that super fund at the
beginning of each month, how much money she would have in ANZ Investment fund after 15
years?
f) Molly is offered an investment that will pay $12 000 each year forever. How much should she
pay for this investment if the rate of return 12% applies?
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