Jenny decided to do the following things after completion of her finance degree at Holmes Institute: (i)
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Question:
- Jenny decided to do the following things after completion of her finance degree at Holmes Institute: (i) Putting an exact amount of money in to Smart Investment Fund at the beginning of each year to have a saving of $800,000 for her retirement in 25 years from now. The average rate of return provided by this investment fund is 11% per year. (ii) Having solar panels installed on her house roof for saving monthly electricity expense. (iii) Saving extra monthly income in to a bank account that allows flexibility when she needs cash and at the same time provides interest income for any existing balance.
- Required:
- a. How much money should Jenny put into her investment fund account at the beginning of each year to reach her saving target in 25 years from now?
- b. The solar panel provider offers her a payment package of $100/month at the end of each month for 3 years. Given the interest rate is 3.5%, calculate the present value of the payment package?
- c. Jenny is considering offers from two banks for her saving account. Bank A offers the interest rate of 2.54% per year, compounding semi-annualy. Bank B offers the interest rate of 2.53% per year, compounding daily. Help Jenny choose the better Bank by calculating Effective Annual Interest Rate (EAR).
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