You have Shs. 10,000 that you would like to deposit in a bank for one year....

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You have Shs. 10,000 that you would like to deposit in a bank for one year. You have visited three different banks to get their quotations on the interest rate that they offer. Each bank pays an interest of Shs 400 on the Shs. 10,000 deposit but in different ways: - Bank A pays Shs. 400 annually in arrears - Bank B pays Shs. 200 semi-annually in arrears - Bank C pays Shs. 100 quarterly in arrears Required: Give a full explanation on whether these terms are equally attractive. If not, which bank offers the best terms? Q2. a) You are evaluating two investments A and B, both of which require $5,500 today. Investment A will pay you $7,020 in five years. Investment B will pay you $8,126 in 8 years. Based only on the return you would earn from each investment, indicate which one is preferable. Show all calculations. b) Suppose you have an investment that promises to pay you $1,360 in four years' time. If you have an opportunity cash rate of 8% per year, how much would be your investment worth today? (i.e. what is its current value?) c) Suppose that you would like to pay yourself $250 each year for the next four years, beginning today. If you can invest your money at 8% interest, how much money must you have today to accomplish your goal? You have Shs. 10,000 that you would like to deposit in a bank for one year. You have visited three different banks to get their quotations on the interest rate that they offer. Each bank pays an interest of Shs 400 on the Shs. 10,000 deposit but in different ways: - Bank A pays Shs. 400 annually in arrears - Bank B pays Shs. 200 semi-annually in arrears - Bank C pays Shs. 100 quarterly in arrears Required: Give a full explanation on whether these terms are equally attractive. If not, which bank offers the best terms? Q2. a) You are evaluating two investments A and B, both of which require $5,500 today. Investment A will pay you $7,020 in five years. Investment B will pay you $8,126 in 8 years. Based only on the return you would earn from each investment, indicate which one is preferable. Show all calculations. b) Suppose you have an investment that promises to pay you $1,360 in four years' time. If you have an opportunity cash rate of 8% per year, how much would be your investment worth today? (i.e. what is its current value?) c) Suppose that you would like to pay yourself $250 each year for the next four years, beginning today. If you can invest your money at 8% interest, how much money must you have today to accomplish your goal?

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1 Evaluation of Different Bank Quotations To determine which bank offers the best terms we need to compare the total interest earned from each bank ov... View the full answer