TABLE 4.1 Rates from First Command Bank (2008-2009) CD rates with quarterly compounding 30 Day SI000 - S99.9999) APR APY 321% 325% S100000 + 3.26% 3.30% 90 Day S1000 - S9999.99 APR APY 3.22% 3.25% SI0000 - S99999.99 3.26% 3.30% S100000 + 3.35% 3.40% I Year APR APY SI000 - S9999.99 331% 3.35% SIO000 - S999999.99 3.35% 3.40% S100 000 + 3.55% 3.60% I8 Month APR APY S1000 - 59999.99 3.56% 3.60% SI0000 - S99.999.99 3.59% 3.65% SI00000 2 Year 3.74% 3.80% APR APY S1000 - 59999.99 3.80% 3.85% SIO000 - S99.999.99 384% 3.90% S100 000+ 3.98% 4.05% Some interest and APY calculations. Parts b and e refer to the 2008–2009 rates at First Command Bank shown in Table 4L. a. Assume that a one-year CD for $5000 pays an APR of 8% that is compounded quarterly. How much total interest does it earn? What is the APY? b. If you purchased a one-year CD for $150,000 from First Command Bank, how much interest would you have received at maturity? Was compounding taking place? Explain. e. If you purchased a two-year CD for $150,000 from First Command Bank, the APY (4.05%) was greater than the APR (3.98%) because compounding was taking place. We are not told, however, what the compounding period was. Use the APR to calculate what the APY would be with monthly compounding. How does your answer compare to the APY in the table ?
TABLE 4.1 Rates from First Command Bank (2008-2009) CD rates with quarterly compounding 30 Day SI000 - S99.9999) APR APY 321% 325% S100000 + 3.26% 3.30% 90 Day S1000 - S9999.99 APR APY 3.22% 3.25% SI0000 - S99999.99 3.26% 3.30% S100000 + 3.35% 3.40% I Year APR APY SI000 - S9999.99 331% 3.35% SIO000 - S999999.99 3.35% 3.40% S100 000 + 3.55% 3.60% I8 Month APR APY S1000 - 59999.99 3.56% 3.60% SI0000 - S99.999.99 3.59% 3.65% SI00000 2 Year 3.74% 3.80% APR APY S1000 - 59999.99 3.80% 3.85% SIO000 - S99.999.99 384% 3.90% S100 000+ 3.98% 4.05% Some interest and APY calculations. Parts b and e refer to the 2008–2009 rates at First Command Bank shown in Table 4L. a. Assume that a one-year CD for $5000 pays an APR of 8% that is compounded quarterly. How much total interest does it earn? What is the APY? b. If you purchased a one-year CD for $150,000 from First Command Bank, how much interest would you have received at maturity? Was compounding taking place? Explain. e. If you purchased a two-year CD for $150,000 from First Command Bank, the APY (4.05%) was greater than the APR (3.98%) because compounding was taking place. We are not told, however, what the compounding period was. Use the APR to calculate what the APY would be with monthly compounding. How does your answer compare to the APY in the table ?
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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Transcribed Image Text:TABLE 4.1 Rates from First Command Bank (2008–2009)
CD rates with quarterly compounding
APR
30 Day
S1000 - 599.999.99
APY
321%
3.25%
S100.000 +
3.26%
3.30%
90 Day
APR
APY
SI000 - S9999.99
3.22%
3.25%
SI0,000 - 599.99999
3.26%
3.30%
S100000
I Year
335%
3.40%
APR
APY
S1000 - $9999.99
3.31%
3.35%
SI0,00 - 599.999.99
335%
3.40%
S100.000 +
3.55%
3.60%
I8 Month
APR
APY
SI000 - $9999.99
3.56%
3.60%
SI0000 - $99,999.99
3.59%
3.74%
3.65%
S100,000 +
3.80%
2 Year
SI000 - $9999 99
APR
APY
3.80%
3.85%
SI0,000 - 599.999.99
3.84%
3.90%
S100.000 +
3.98%
4.05%
Some interest and APY calculations. Parts b and e refer to the 2008–2009 rates at First Command Bank
shown in Table 4.1.
a. Assume that a one-year CD for $5000 pays an APR of 8% that is compounded quarterly. How
much total interest does it earn? What is the APY?
b. If you purchased a one-year CD for $150,000 from First Command Bank, how much interest would
you have received at maturity? Was compounding taking place? Explain.
e. If you purchased a two-year CD for $150,000 from First Command Bank, the APY (4.05%) was
greater than the APR (3.98%) because compounding was taking place. We are not told, however,
what the compounding period was. Use the APR to calculate what the APY would be with monthly
compounding. How does your answer compare to the APY in the table?
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