John and Randy are competing to see who can accumulate more money. They are both given $100 to deposit into an account and see who has more after a year. John decides to deposit his whole amount into an account that pays interest at a rate of 3%, compounded continuously and withdraws it at the end of the year. Randy puts his money into an account that earns interest at 3% compounded semiannually, and after half a year, pulls out all his money and puts it in another account that earns interest at 4% compounded semiannually. Who has more money at the end of the year, and by how much?

John and Randy are competing to see who can accumulate more money. They are both given $100 to deposit into an account and see who has more after a year. John decides to deposit his whole amount into an account that pays interest at a rate of 3%, compounded continuously and withdraws it at the end of the year. Randy puts his money into an account that earns interest at 3% compounded semiannually, and after half a year, pulls out all his money and puts it in another account that earns interest at 4% compounded semiannually. Who has more money at the end of the year, and by how much?

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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Sebastian is going to deposit $790 in an account that earns 6.8% interest compounded annually. His wife Yolanda will deposit $815 in an account that earns 7.2% simple interest each year. They deposit the money on the same day and make no additional deposits or withdrawals for the accounts. Which statement is true concerning Sebastian’s and Yolanda’s account balances after 3 years? Yolanda’s account will have about $28.67 less than Sebastian’s account. Yolanda’s account will have about $9.78 less than Sebastian’s account. Sebastian’s account will have about $28.67 less than Yolanda’s account. Sebastian’s account will have about $9.78 less than Yolanda’s account.
Ms. Brown purchases a house for $300,000. She borrows $200,000 from a mortgage company at the rate of 4.5%. Consider interest paid on the loan as only cost of borrowing to Ms. Brown. She rent the property for $2,000 a month. She pays $6,000 property tax per year. The house maintenance costs each year is about $3,000. After 5 years she sells the property for $400,000. What is Ms. Brown’s average annual rate of return on this investment.
Eugene began to save for his retirement at age 30, and for 13 years he put $ 250 per month into an ordinary annuity at an annual interest rate of 4% compounded monthly. After the 13 years, Eugene was unable to make the monthly contribution of $ 250, so he moved the money from the annuity into another account that earned 5% interest compounded monthly. He left the money in this account for 22 years until he was ready to retire. How much money did he have for retirement? Retirement amount =
Frank buys a house at age 48 for $600,000 by making a $170,000 down payment and securing a 30-year mortgage with 3.54%/year interest compounded monthly. He sells his house at age 65 when he retires for $840,000 and adds his equity in his retirement account. If Frank wants to receive $8,000 every month during his retirement for 28 year, then how much he needs to deposit every month into his retirement account starting at age 27 that pays interest at the rate of 2.07%/year compounded monthly?
Amy makes her first $15,000 payment into a conservative savings plan, earning 8% per year into her savings account when she is 28 years old. After the 10th payment, Amy makes no additional payments nor does she withdraw any money from the account. One of Amy's friends, Frank, starts a savings plan that is identical to Amy's when he is 38 years old (Frank's account also earns 8% per year). He continues making $15,000 annual payments until he is 60 years old. If both Amy and Frank retire when they are 60 years old, who will have more money in their savings plan at that time?
Tina has saved $23000 from her summer jobs. Rather than work for a living, she plans to buy an annuity from a trust company and become a beachcomber in Fiji. An annuity will pay her a certain amount each month for the rest of her life and is calculated at 5 percent interest, compounded monthly, over Tina's 55 remaining years. Tina calculates that she needs at least $5 per day to live in Fiji, and she needs $1200 for airfare. How much would she have available to spend each day? $3.19 $4.79 $2.39 $6.38
Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $13,000 available each year for various school and living expenses. If he earns 7 percent on his money, how much must be deposited at the start of his studies to be able to withdraw $13,000 a year for three years?
Emma plans to loan $1,000 to her friend, who will pay a simple interest rate of 5.8% every year for the loan. If no payments are made and no further borrowing occurs between them for 13 years, then how much money will Emma' s friend owe her? $1,061.36 $1,754.00 $2,081.20 $158.00 Now, assume that Emma's friend volunteers to pay compound interest instead of simple interest for her loan. If interest is accrued at 5.8% compounded annually, all other things being equal, how much money will Emma's friend owe her in 13 years? $2,081.20 $1,058.00 $120.71 $ 1,754.00 Emma has another investment option in the market that pays 5.8% nominal interest, but it's compounded quarterly. Keeping everything else constant, how much money will Emma have in 13 years if she invests $1,000 in this fund? $158.00 $129.72 $2,114.01 $1,059.27
Amy makes her first $15,000 payment into a conservative savings plan, earning 8% per year into her savings account when she is 28 years old. After the 10th payment, Amy makes no additional payments nor does she withdraw any money from the account. One of Amy's friends, Frank, starts a savings plan that is identical to Amy's when he is 38 years old (Frank's account also earns 8% per year). He continues making $15,000 annual payments until he is 60 years old. If both Amy and Frank retire when they are 60 years old, who will have more money in their savings plan at that time?
After Shipra got a job, the first thing she bought was a new car. She took out an amortized loan for $45,000—with no ($0) down payment. She agreed to pay off the loan by making annual payments for the next four years at the end of each year. Her bank is charging her an interest rate of 10% per year. Yesterday, she called to ask that you help her compute the annual payments necessary to repay her loan. Calculate the annual payment and complete the following loan amortization table: Year Beginning Amount Payment Interest Paid Principal Paid Ending Balance 1 $45,000.00 2 3 4 -$0.02
Eugene began to save for his retirement at age 35, and for 15 years he put $ 325 per month into an ordinary annuity at an annual interest rate of 8% compounded monthly. After the 15 years, Eugene was unable to make the monthly contribution of $ 325, so he moved the money from the annuity into another account that earned 8% interest compounded monthly. He left the money in this account for 15 years until he was ready to retire. How much money did he have for retirement? If Eugene had waited until he was 44 years old to start saving for retirement and then decided to put money into an ordinary annuity for 21 years earning 8% interest compounded monthly, what monthly payment would he have to make to accumulate the same amount for retirement as you found in the first part of the question?
Lisa deposits $80,000 into an account that pays 6% interest per year, compounded annually. Scott deposits $80,000 into an account and also pays 6% per year, but it is simple interest. find the interest Lisa and Scott earn during each of the first three years. Then decide who earns more interest each year. Assume there are no withdrawals and no additional deposits.

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