Question: Ted has always had difficulty saving money. So on June 1 st , Ted enrolls in a Christmas savings program at his local bank and
Ted has always had difficulty saving money. So on June 1 st , Ted enrolls in a Christmas savings program at his local bank and deposits $750. That money is totally locked away until December 1 st so that Ted can be certain that he will still have it once the holiday shopping season begins. Suppose that the annual rate of interest is 10 percent on ordinary savings accounts (that allow depositors to withdraw their money at any time). How much interest is Ted giving up by pre-committing his money into the Christmas savings account for six months instead of depositing it into an ordinary savings account? (Hint: If you invest X dollars at an annual interest rate of Y percent, you will receive interest equal to X * Y, where the interest rate Y is expressed as a decimal.)
Step by Step Solution
3.43 Rating (166 Votes )
There are 3 Steps involved in it
Ted is giving up 3750 in interest over the sixmonth period To see why ... View full answer
Get step-by-step solutions from verified subject matter experts
Document Format (2 attachments)
1438_6054778b15fee_652477.pdf
180 KBs PDF File
1438_6054778b15fee_652477.docx
120 KBs Word File
