QUESTION 2 (TIME VALUE OF MONEY) a) You have just received a bonus of $15,750 and are looking to deposit the money in a bank for 5 years. You have investigated the annual deposit rate of several Australian banks and collected the following information: Bank Annual rate Compounding frequency Commonwealth Bank of Australia 0.50% Monthly Westpac Banking Corporation 0.90% Quarterly Australia and New Zealand Banking Group 0.75% Daily National Australia Bank 0.80% Annually i. To determine which bank you should deposit your money in, calculate how much money you will earn at the end of 5 years at each bank. (round your answer to 2 decimal places). [4.5 marks) ii. You understand that the more frequently interest is earned in each year, the more you will have at the end of your investment horizon. Is this always true? Discuss this statement considering your answer from the previous part. [1.5 marks] b) A professional footy player and his agent are evaluating three contract options to play in the Australian Football League (AFL). Each option offers a signing bonus and a series of payments over the life of the contract. The player uses 7.25% rate of return (compounded annually) to evaluate the options. Richmond Hawthorn Collingwood Year Cash flow Football Club Football Club Football Club 0 signing bonus $3,500,000 $3,500,000 $3,500,000 1 Annual Salary $700,000 $850,000 $775,000 2 Annual Salary $750,000 $800,000 $775,000 3 Annual Salary $800,000 $750,000 $775,000 4 Annual Salary $850,000 $700,000 $775,000 (1) Using the information provided above, which contract should be chosen? (Show your calculations). [4 marks] (ii) Explain the phrase "a dollar today is worth more than a dollar tomorrow" [2 marks] (6 + 6 = 12 marks)