Question
Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and earn interest for exactly four years, after which she
Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and earn interest for exactly four years, after which she will use it as a deposit on her new house. She has researched the interest market and come up two good introductory options to choose from: 1) Sum bank- 2.7% interest for the first year, then 1.15 % for the next three years. 2) Certain bank- 2.1% for the first two years and then 0.4% for the next two years. Assume that interest is paid monthly and that the returns occur after tax. Task: a) Calculate the amount of interest Sandy will have earned under each scenario. b) Taking into consideration the amount of interest earned over the 4 years, calculate the annual rate of return for each product as a percentage. c) Explain why your answers in question b better represents an APR or an EAR.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started