Reference no: EM133123138
A) Lisa has $100,000 in cash today. Which one of the following offers from the banks she should choose in order to double her money?
Bank A: 12 percent annual interest (12% p.a.) for 5 years
Bank B: 6 percent annual interest (6% p.a.) for 10 years
Bank C: 8 percent annual interest (8% p.a.) for 9 years
B) Suppose that Bank D offers Lisa a deposit account of interest at 11% per annum, interest is compounded and payable half-yearly. In competing for the deposit, Bank E offers Lisa interest at 10.8% p.a., but compounded and payable monthly.
(i) Calculate the effective annual rate (EAR) of each Bank.
(ii) Refer to Part A, Lisa has $100,000 in cash today, which bank she should put in the deposit? Explain.
C) Travis invests $10,000 today into a retirement account. He expects to earn 8 percent, compounded annually, on his money for the next 26 years. After that, he wants to be more conservative, so only expects to earn 5 percent, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account?
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