Question
I. Investment choices (10 points): A loved one, who recently died, has left a legacy of $10,000. You have decided to give the money to
I. Investment choices (10 points):
A loved one, who recently died, has left a legacy of $10,000. You have decided to give the money to your children upon your death. Given the recent volatility in the stock markets, you wantto be very conservative in your investments. You then consider the following investments:
Investing with a friend who promises a simple interest rate of 12% annually. Investing in a bank account with an interest rate compounded annually 4%.
Assuming you are going to live for another 70 years:
(a) What would be the future value of each investment in 70 years? (4 points)
(b) Determine the range of years for which the option (a) is preferable (e.g. option (a) is preferable if N > 20 years or if N < 50 years). Express your answer with an accuracy of one hundredth of a year (e.g. XX.XX years). Use the function GOAL SEEK. (3 points)
(c) Draw a graph showing the evolution of the future value of each investment based on the life of the investment up to a maximum of 70 years. Check from the graph that the solution found in (b) is valid. (3 points)
II. Selecting a credit card (10 points):
You recently decided to get a credit card with the intention to settle the full balance of the card at the end of each month. However, if you miss a payment, you want to get the best interest rate possible. You are currently dealing with RBC and thus, you decided to select the RBC Avion card, which has an interest rate of 19.99 %, compounded daily. However, you want to compare this card with the following options:
BMO Airmiles, 21.0% compounded quarterly
CIBC Aerogold, 20.5% compounded annually
MNBA, 19.99% compounded monthly
(a) Using the equation introduced in class, calculate the effective annual interest rate for each card. (3 points)
(b) Using the function EFFECT (see below), calculate the effective annual interest rate for each card.Verify that the results obtained correspond to those of part (a). (1 point) (c) Using the CONDITIONAL FORMATTING tool (see Figure 8); highlight the credit card(s) with a better rate than the RBC Avion card. (1 point)
(d) What is the card with the highest interest rate advantage (for you)? (3 points)
(e) Suppose a non-paid balance $ 5,000 remain in your credit card account for a year. What would be the interest accrued during the year if you use the card with the lowest interest rate? (2 points)
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