Question

QUESTION 1 (18 points) You just received a RM15,000 bonus. You would like to see what it might grow to if you invest it. a. Calculate the future value of RM15,000 given that it will be invested for 7 years at an annual interest rate of 5 percent. (2 points) (4 points) b. Recalculate part (a) using a compounding period that is (i) semiannual and (ii) quarterly. c. Now let's look at what might happen if you can invest the money at a 10 percent rate rather than 5 percent; recalculate parts (a) and (b) for a 10 percent annual interest rate. (6 points) d. Now let's look at what might happen if you can invest the money for 14 years rather than 7 years; recalculate parts (a) using a time horizon of 14 years (annual interest rate is still 5 percent). (2 points) e. What conclusions can you draw when you compare the answers in parts (a) to (d) above? (2 points) f. You have a choice of depositing your money into Bank A, which pays 6 percent interest compounded annually, or into Bank B, which pays 5.8 percent compounded monthly. Which alternative is the most attractive?

          QUESTION 1 (18 points)
You just received a RM15,000 bonus. You would like to see what it might grow to if you invest
it.
a. Calculate the future value of RM15,000 given that it will be invested for 7 years at an annual
interest rate of 5 percent.
(2 points)
(4 points)
b. Recalculate part (a) using a compounding period that is (i) semiannual and (ii) quarterly.
c. Now let's look at what might happen if you can invest the money at a 10 percent rate rather
than 5 percent; recalculate parts (a) and (b) for a 10 percent annual interest rate.
(6 points)
d. Now let's look at what might happen if you can invest the money for 14 years rather than 7
years; recalculate parts (a) using a time horizon of 14 years (annual interest rate is still 5
percent).
(2 points)
e. What conclusions can you draw when you compare the answers in parts (a) to (d) above?
(2 points)
f. You have a choice of depositing your money into Bank A, which pays 6 percent interest
compounded annually, or into Bank B, which pays 5.8 percent compounded monthly. Which
alternative is the most attractive?

QUESTION 1 (18 points)
You just received a RM15,000 bonus. You would like to see what it might grow to if you invest
it.
a. Calculate the future value of RM15,000 given that it will be invested for 7 years at an annual
interest rate of 5 percent.
(2 points)
(4 points)
b. Recalculate part (a) using a compounding period that is (i) semiannual and (ii) quarterly.
c. Now let's look at what might happen if you can invest the money at a 10 percent rate rather
than 5 percent; recalculate parts (a) and (b) for a 10 percent annual interest rate.
(6 points)
d. Now let's look at what might happen if you can invest the money for 14 years rather than 7
years; recalculate parts (a) using a time horizon of 14 years (annual interest rate is still 5
percent).
(2 points)
e. What conclusions can you draw when you compare the answers in parts (a) to (d) above?
(2 points)
f. You have a choice of depositing your money into Bank A, which pays 6 percent interest
compounded annually, or into Bank B, which pays 5.8 percent compounded monthly. Which
alternative is the most attractive?

Added by Teresa J.

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