Self-Test Problems

(Solutions in Appendix)

  1. Learning Goals 2, 5

    ST5–1 Future values for various compounding frequencies Delia Martin has $10,000 that she can deposit in any of three savings accounts for a 3-year period. Bank A compounds interest on an annual basis, bank B compounds interest twice each year, and bank C compounds interest each quarter. All three banks have a stated annual interest rate of 4%.

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

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

    3. On the basis of your findings in parts a and b, which bank should Ms. ...

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