involving investments, mortgages, loans, and so on are based on either a fixed or a variable in used throughout this question. $1,000 in a savings account at her bank. Her account will earn an annual simple interest rate wals, how much money will she have in her account in 9 years? 36 1 Do Addison's savings institution modifies the terms of her account and agrees to pay 5.8% in com things being equal, how much money will Addison have in her account in 9 years?
involving investments, mortgages, loans, and so on are based on either a fixed or a variable in used throughout this question. $1,000 in a savings account at her bank. Her account will earn an annual simple interest rate wals, how much money will she have in her account in 9 years? 36 1 Do Addison's savings institution modifies the terms of her account and agrees to pay 5.8% in com things being equal, how much money will Addison have in her account in 9 years?
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
Transcribed Image Text: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.
Addison deposited $1,000 in a savings account at her bank. Her account will earn an annual simple interest rate of 5.8%. If she makes no additional
deposits or withdrawals, how much money will she have in her account in 9 years?
O $1,061.36
O $1,661.01
O $158.00
O $1,522.00
Now, assume that Addison's savings institution modifies the terms of her account and agrees to pay 5.8% in compound interest on her $1,000
balance. All other things being equal, how much money will Addison have in her account in 9 years?
O $1,058.00
O $1,522.00
O $96.34
O $1,661.01
Transcribed Image Text:Suppose Addison had deposited another $1,000 into a savings account at a second bank at the same time. The second bank also pays a nominal (or
stated) interest rate of 5.8% but with quarterly compounding. Keeping everything else constant, how much money will Addison have in her account at
this bank in 9 years?
O $158.00
O $1,059.27
O $103.03
O $1,679.09
Expert Solution
Step 1
Simple interest is simple in nature that means no interest on interest is there but in compounded interest there is interest on the interest also.
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