Question 3 (at home, to practice) The following banks all offer 20-year Certificates of Deposits* (CDs), but at the following, different, conditions: Bank A: Bank B: Bank C: Bank D: Bank E: 10 percent per year compounded annually 9.8 percent per year compounded semiannually 9.6 percent per year compounded quarterly 9.5 percent per year compounded monthly 9.4 percent per year compounded daily Francesca has inherited £150,000. She decides to invest the money in the 20-year Certificate of Depos offered by Bank E. If, instead, Francesca had invested her money in the bank with the CD offering the best rate, how much more money would she have had after 20 years? First write down the formulae you need to use to do the calculations. Then, solve numerically using a calculator or Excel.
Question 3 (at home, to practice) The following banks all offer 20-year Certificates of Deposits* (CDs), but at the following, different, conditions: Bank A: Bank B: Bank C: Bank D: Bank E: 10 percent per year compounded annually 9.8 percent per year compounded semiannually 9.6 percent per year compounded quarterly 9.5 percent per year compounded monthly 9.4 percent per year compounded daily Francesca has inherited £150,000. She decides to invest the money in the 20-year Certificate of Depos offered by Bank E. If, instead, Francesca had invested her money in the bank with the CD offering the best rate, how much more money would she have had after 20 years? First write down the formulae you need to use to do the calculations. Then, solve numerically using a calculator or Excel.
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
Related questions
Question
Transcribed Image Text:Question 3 (at home, to practice)
The following banks all offer 20-year Certificates of Deposits* (CDs), but at the following, different,
conditions:
Bank A:
Bank B:
Bank C:
Bank D:
Bank E:
10 percent per year compounded annually
9.8 percent per year compounded semiannually
9.6 percent per year compounded quarterly
9.5 percent per year compounded monthly
9.4 percent per year compounded daily
Francesca has inherited £150,000. She decides to invest the money in the 20-year Certificate of Deposit
offered by Bank E.
If, instead, Francesca had invested her money in the bank with the CD offering the best rate, how much
more money would she have had after 20 years?
First write down the formulae you need to use to do the calculations. Then, solve numerically using a
calculator or Excel.
Transcribed Image Text:Table 1: Present value factors
To determine the present value of a single payment received 'n' years from the present
(or vice versa)
Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
6%
9%
0.9434
0.9174
0.8900 0.8417
0.8396
0.7921
0.7473 0.6499
0.7050
0.5963
0.6651
0.5470
16
17
18
19
20
0.6274
0.5019
0.5919 0.4604
0.5584 0.4224
0.5268
0.3875
0.4970 0.3555
0.4688
0.3262
0.4423
0.2992
0.4173 0.2745
0.3936
0.2519
0.3714
0.2311
0.3503
0.2120
0.3305 0.1945
0.3118 0.1784
10%
0.9091
0.8264
0.7513
0.7722
0.7084 0.6830 0.6355
0.6209
0.5645
0.5132
0.4665
0.4241
0.2255 0.1938
0.3855
0.1911
0.3505
0.2875
0.2149
0.1954 0.1619
0.3186 0.2567
0.1869
0.1685 0.1372
0.2897
0.2292
0.1625
0.1452 0.1163
0.2633
0.2046 0.1413
0.1252 0.0985
0.2394
0.1827
0.1229
0.1079 0.0835
0.2176 0.1631
0.0930 0.0708
0.1069
0.0929 0.0802 0.0600
0.1978
0.1456
0.1799 0.1300 0.0808 0.0691 0.0508
0.1635 0.1161 0.0703 0.0596 0.0431
0.1486 0.1037 0.0611 0.0514 0.0365
12%
15%
0.8929
0.8696
0.7972
0.7561
0.7118 0.6575
9%
0.9174
16%
18%
0.8621
0.8475
0.7432
0.7182
0.6407 0.6086
0.5718
0.5674 0.4972
0.5066
0.4323
0.4523
0.4039
0.3606
0.3220
Table 2: Cumulative present value factors
('annuity factors')
The table gives the present value of 'n' annual payments of 1 received for the next 'n' years with
a constant discount of x% per year. For example, with a discount rate of 8% and with 6 annual
payments of £1 the present value is £4.6229
6.4951
6.8137
0.5523
0.5158
0.4761 0.4371
0.4104 0.3704
0.3139
0.3050 0.2660
0.2630
0.2267
0.3759 0.3538
0.3269
0.2843
0.2472
20%
0.8333
0.6944
0.5787
0.4823
0.4019
0.3349
15%
16%
18%
0.8696 0.8621 0.8475
1.6257 1.6052 1.5656
2.2832 2.2459
2.1743
2.8550 2.7982
2.6901
3.3522 3.2743
3.1272
3.7845 3.6847
3.4976
4.1604
4.4873
4.7716
5.0188 4.8332 4.4941
4.6065 4.3030
5.2337 5.0286 4.6560
5.4206
5.5831 5.3423
0.2791
0.2326
6%
10%
12%
0.9434
1.8334 1.7591
2.6730 2.5313
0.9091
0.8929
1.7355 1.6901
2.4869 2.4018
3.4651 3.2397
3.1699 3.0373
4.2124 3.8897 3.7908 3.6048
4.9173 4.4859 4.3553 4.1114
5.5824 5.0330
4.8684
4.5638
6.2098 5.5348 5.3349 4.9676
6.8017 5.9952 5.7590 5.3282
7.3601 6.4177 6.1446 5.6502
3.8372
4.0310
4.1925
7.8869
6.8052
5.9377
4.3271
8.3838 7.1607
6.1944
5.1971 4.7932 4.4392
8.8527
7.1034 6.4235
4.9095 4.5327
7.4869
9.2950 7.7862
7.3667 6.6282
5.7245 5.4675
5.0081
4.6106
5.5755
5.0916
4.6755
5.6685 5.1624
4.7296
9.7122 8.0607 7.6061 6.8109 5.8474
10.1059 8.3126 7.8237 6.9740 5.9542
10.4773 8.5436 8.0216 7.1196
6.0472
10.8276 8.7556 8.2014 7.2497 6.1280 5.8178
11.1581 8.9501 8.3649 7.3658 6.1982 5.8775 5.3162
5.7487 5.2223
4.7746
5.2732
4.8122
11.4699 9.1285
8.5136 7.4694
4.0386 3.8115
4.3436 4.0776
0.1615
0.1346
0.1122
0.0935
0.0779
0.0649
0.0541
0.0451
0.0376
0.0313
0.0261
20%
0.8333
1.5278
2.1065
2.5887
2.9906
3.3255
3.6046
4.8435
6.2593 5.9288 5.3527 4.8696
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education