1. A bank is advertising the following 1-year CDs:
(a) A CD with an APR of 1.95% compounded annually (so n=1)
(b) A CD with an APR of 1.93% compounded daily (so n=365)
(c) A CD with an APR of 1.94% compounded monthly (so n=12)
Which is the best investment?
Option (a)
Option (b)
Option (c)
2. Chaim has won $5,000 and wants to save it towards buying a house when he finishes his law degree. He has the choice between an account which compounds daily (so n=365) with an APR of 7% and another which also has a 7% APR but compounds quarterly (so n=4). How much more interest will he earn if he chooses the first account?
Chaim will each $______ more by choosing the first account. (Enter an answer rounded to two decimal places.)
3. Dana recently graduated from high school and received a generous amount of money as a gift. She wants to use part of that money for a down payment on a car in four years. She has a money market account that earns 3.75% compounded monthly (so n=12). How much money should Dana put into the account today to have a future value of $5,000 when she graduates from college?
Dana should put $________ into the account today. (Enter a number rounded to two decimal places.)
4. Jason and Piera decide to start a college savings account for their newborn son, Joseph. They want to have $40,000 available for him when he turns 18, and they expect the account to have an average return of 7%. How much do they need to deposit each month (so n=12) to reach this goal?
They should deposit $_____into the account each month. (Enter a number rounded to two decimal places.)
5. If $21,200 is invested in a 2-year CD that compounds annually (so n=1) with an APR of 5%, what will the CD be worth when it matures?
The CD will be worth $_______ when it matures. (Enter a number rounded to two decimal places.)