You have invested your annual bonus in a one year fixed deposit at Alpha Bank which offers a nominal interest rate of 12% per annum compounded bi-annually. However, at a braai over the weekend, your friend has pointed out that you should have rather invested at the same bank he is a client of, namely Beta Bank, because even though the nominal interest rate is half a percent less than Alpha Bank, the interest is compounded quarterly, and you will therefore get a greater return. REQUIRED: Discuss whether your friend's advice was correct. Provide calculations to support your answer.
You have invested your annual bonus in a one year fixed deposit at Alpha Bank which offers a nominal interest rate of 12% per annum compounded bi-annually. However, at a braai over the weekend, your friend has pointed out that you should have rather invested at the same bank he is a client of, namely Beta Bank, because even though the nominal interest rate is half a percent less than Alpha Bank, the interest is compounded quarterly, and you will therefore get a greater return. REQUIRED: Discuss whether your friend's advice was correct. Provide calculations to support your answer.
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:You have invested your annual bonus in a one year fixed deposit at Alpha Bank which offers a nominal
interest rate of 12% per annum compounded bi-annually. However, at a braai over the weekend, your
friend has pointed out that you should have rather invested at the same bank he is a client of, namely
Beta Bank, because even though the nominal interest rate is half a percent less than Alpha Bank, the
interest is compounded quarterly, and you will therefore get a greater return.
REQUIRED:
Discuss whether your friend's advice was correct. Provide calculations to support your answer.
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