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Future values for various compounding frequencies Delia Martin has $10,000 that she can deposit in any of...

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Finance

  1. Future values for various compoundingfrequencies Delia Martin has $10,000 that she can depositin any of three savings accounts for a 3-year period. Bank Acompounds interest on an annual basis, bank B compounds interesttwice each year, and bank C compounds interest each quarter. Allthree banks have a stated annual interest rate of 4%.

    1. What amount would Ms. Martin have after 3 years, leaving allinterest paid on deposit, in each bank?

    2. What effective annual rate (EAR) would she earn in each of thebanks?

    3. On the basis of your findings in parts a andb, which bank should Ms. Martin deal with?Why?

    4. If a fourth bank (bank D), also with a 4% stated interest rate,compounds interest continuously, how much would Ms. Martin haveafter 3 years? Does this alternative change your recommendation inpart c? Explain why or why not.

Answer & Explanation Solved by verified expert
4.2 Ratings (637 Votes)
a Bank A Future value Present value 1 rn Future value 10000 1 0043 Future value 10000 1124864 Future value 1124864 Bank B Number of periods 3 2 6 Rate 4 2 2 Future value Present value 1 rn Future value 10000 1 0026    See Answer
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