Finding nominal rate of return Suppose the effective annual interest rate on some investment is 9.38%. a.

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Finding nominal rate of return Suppose the effective annual interest rate on some investment is 9.38%.

a. What is the stated rate per month?

b. Suppose you decide to kick your Starbucks habit to save money. Currently you spend $125 per month (about $4 per day) on Starbucks coffee.

Without considering the time value of money and assuming Starbucks prices remain steady, how much will you spend at Starbucks over the next 40 years assuming no change in your monthly spending?

c. Now suppose you invest the $125 monthly in an account that earns an effective annual return of 9.38%. How much money will you accumulate over 40 years using the funds that you previously spent at Starbucks? Note: assume your first monthly deposit occurs one month from now.

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Principles Of Managerial Finance

ISBN: 9781292400648

16th Global Edition

Authors: Chad Zutter, Scott Smart

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