All compounding/discounting should be done using PV/FV functions in Excel.
1. You are planning to deposit $100,000 into a bank account and to leave the funds on deposit for 12 years. Bank A pays interest at a rate of 3%, compounded annually. Bank B pays interest at a rate of 2.5%, compounded semiannually. Bank C pays interest at a rate of 2.2% compounded daily.
If you put your money into Bank A, how much will you have in the account after the 12 years?
If you put your money into Bank B, how much will you have in the account after the 12 years?
If you put your money into Bank C, how much will you have in the account after the 12 years?
What factors contribute to the difference in the amounts in a, b and c? Explain.
2. You need to have $3,000 in order to make a down payment on a car in 3 years. In order to achieve that goal, how much do you need to deposit in a bank today if the bank pays 3% interest compounded semiannually?