Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

k. Five banks offer nominal rates of 8% on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and

image text in transcribed
k. Five banks offer nominal rates of 8% on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and E pays dally. Assume 365 days in a year. 1. What effective annual rate does each bank pay? If you deposit $4,000 in each bank today, how much will you have in each bank at the end of 1 year? 2 years? Round your answers to two decimal places. 2. If the TVM is the only consideration, what nominal rate will cause all of the bonks to provide the same effective annual rate as Bank A? Round your answers to two decimal places. 3. Suppose you don't have the $4,000 but need it at the end of 1 year. You plan to make a series of deposits - annually for A, semiannually for B, quarterly for C, monthly for D, and dally for E - with payments beginning today. How large must the payments be to each bank? Round your answers to the nearest cent. 4. 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Urban Public Finance

Authors: D. Wildasin

1st Edition

0415851882, 978-0415851886

More Books

Students also viewed these Finance questions

Question

5. Identify three characteristics of the dialectical approach.

Answered: 1 week ago