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Five banks offer nominal rates of 5 % on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and
Five banks offer nominal rates of on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and E pays daily. Assume days in a year.
What effective annual rate does each bank pay? If you deposit $ in each bank today, how much will you have in each bank at the end of year? years? Round your answers to two decimal places.
A B C D E
EAR fill in the blank
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FV after year $ fill in the blank
$ fill in the blank
$ fill in the blank
$ fill in the blank
$ fill in the blank
FV after years $ fill in the blank
$ fill in the blank
$ fill in the blank
$ fill in the blank
$ fill in the blank
If the TVM is the only consideration, what nominal rate will cause all of the banks to provide the same effective annual rate as Bank A Round your answers to two decimal places.
B C D E
Nominal rate fill in the blank
fill in the blank
fill in the blank
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Suppose you don't have the $ but need it at the end of year. You plan to make a series of deposits annually for A semiannually for B quarterly for C monthly for D and daily for E with payments beginning today. How large must the payments be to each bank? Round your answers to the nearest cent.
A B C D E
Payment $ fill in the blank
$ fill in the blank
$ fill in the blank
$ fill in the blank
$ fill in the blank
Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks?
It is more likely that an investor would prefer the bank that compounded
frequently.
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