Question
Xavier has just inherited $75,000. He plans to put the money in an interest account for one year while he researches other investment options. Xavier
Xavier has just inherited $75,000. He plans to put the money in an interest account for one year while he researches other investment options. Xavier has come to you to help him decide which temporary investment option is better. The following are the two investment options he is considering:
- Option 1: Interest account earning 3.05% p.a. with quarterly compounding.
- Option 2: Interest account earning 3.0% p.a. with monthly compounding.
All interest will be paid upon maturity. Ignore taxes.
Required
- What is the value of each option after one year? Which investment option do you recommend?
- Under what conditions is the effective annual rate (EAR) the same as the annual percentage rate (APR)?
- During your discussion with Xavier, you have compiled the following Net Worth Statement:
| Xavier Net Worth Statement May 2021 | ||||
| Assets Cash Car Home |
3,000 6,000 675,000 684,000 |
| Liabilities Credit card A, 19% Credit card B, 15% Student loan, 9% Mortgage |
8,000 4,000 17,000 445,000 474,000 |
|
|
|
| Net Worth | 210,000 |
Based on this additional information, provide Xavier with two personal finance recommendations. (6 marks)
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Gold And Debt An American Hand Book Of Finance With Over Eighty Tables And Diagrams Illustrative Of The Following Subjects The Dollar And Other Units Paper Money In The United States And Europe Gold And Silver In The United States And Europe
Authors: Fawcett William Lyman
1st Edition
1313124508, 9781313124508
