Erin's grandmother gave her some money as a gift, with the instructions that Erin was to...
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Erin's grandmother gave her some money as a gift, with the instructions that Erin was to invest the money to save for her education. At her bank, Erin explored the investment possibilities for the money, finding that there were three options that she could consider. All of them pay compound interest. Option 1: The Daily Interest Savings Account pays annual interest of 0.050%, cal- culated on the minimum balance in the account each day and paid monthly. Option 2: The Investment Savings Account pays annual interest of 0.050% if the balance is between $25 000 and $59 999, 0.050 % if the balance is between $10 000 and $24 999, 0.025% if the balance is between $5000 and $9999, and 0.010% if the balance is under $5000. The interest is calculated on the minimum balance each month and is paid monthly. Option 3: The Smart Saver Account pays annual interest of 1.250% if the balance is $5000 or more, or 0.000% if the balance is under $5000. The interest is calculated on the minimum balance each day and is paid monthly. While exploring her options at her bank, Erin was advised that she should also consider the number and type of transactions made in the account each month or year when choosing an account. QUESTIONS 1. Suppose Erin's gift was $9000 and she invested the money immediately in a bank account for a one-year period. Assume that the bank's interest rates remain the same throughout the year. (a) For each of the three options, how much interest would Erin earn in one year's time? (b) Which option would pay the most interest? 2. Suppose Erin's gift was $12 000 and she invested the money immediately in a bank account for a one-year period. Assume that the bank's interest rates remain the same throughout the year. (a) For each of the three options, how much interest would Erin earn in one year's time? (b) Which option would pay the most interest? (c) If Erin knew she would have to withdraw $3500 after ten months, which savings option would pay the most interest? Erin's grandmother gave her some money as a gift, with the instructions that Erin was to invest the money to save for her education. At her bank, Erin explored the investment possibilities for the money, finding that there were three options that she could consider. All of them pay compound interest. Option 1: The Daily Interest Savings Account pays annual interest of 0.050%, cal- culated on the minimum balance in the account each day and paid monthly. Option 2: The Investment Savings Account pays annual interest of 0.050% if the balance is between $25 000 and $59 999, 0.050 % if the balance is between $10 000 and $24 999, 0.025% if the balance is between $5000 and $9999, and 0.010% if the balance is under $5000. The interest is calculated on the minimum balance each month and is paid monthly. Option 3: The Smart Saver Account pays annual interest of 1.250% if the balance is $5000 or more, or 0.000% if the balance is under $5000. The interest is calculated on the minimum balance each day and is paid monthly. While exploring her options at her bank, Erin was advised that she should also consider the number and type of transactions made in the account each month or year when choosing an account. QUESTIONS 1. Suppose Erin's gift was $9000 and she invested the money immediately in a bank account for a one-year period. Assume that the bank's interest rates remain the same throughout the year. (a) For each of the three options, how much interest would Erin earn in one year's time? (b) Which option would pay the most interest? 2. Suppose Erin's gift was $12 000 and she invested the money immediately in a bank account for a one-year period. Assume that the bank's interest rates remain the same throughout the year. (a) For each of the three options, how much interest would Erin earn in one year's time? (b) Which option would pay the most interest? (c) If Erin knew she would have to withdraw $3500 after ten months, which savings option would pay the most interest?
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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