Chapter 5

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

What would be the annual percentage yield for a savings account that earned $18.00 in interest on $900 over the past 365 days?

APY = 100 (Interest / Principal) = 100 ($18.00 / $900) = 2.00%

With a 28 percent marginal tax rate, would a tax-free yield of 8 percent or a taxable yield of 10.5 percent give you a better return on your savings?

After-tax yield = Pretax yield × (1 - Tax rate) = 10.50% × (1 - 0.28) = 7.56% The tax-free investment yields 8 percent which is preferable to the 7.56 percent after-tax yield on the taxable investment.

A certificate of deposit will often result in a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a $63,000, 6 percent CD?

Annual interest = Annual interest rate × Investment = 0.06 × $63,000 = $3,780 Penalty = 2 months of interest = (2 / 12) × Annual interest = (2 / 12) × $3,780 = $630

What is the annual opportunity cost of a checking account that requires a $400 minimum balance to avoid service charges? Assume an interest rate of 5 percent.

Annual opportunity cost = Minimum balance × Interest rate = $400 × 0.05 = $20

A payday loan company charges 7.50 percent interest for a two-week period. What is the annual interest rate?

Annual percentage rate = Rate per period × Number of periods per year = 0.0750 × (52 weeks / 2 weeks) = 1.95, or 195.00%

Based on the following information, determine the true balance in your checking account. Balance in your checkbook $433 Interest earned on the account $6 Balance on bank statement 586 Total of outstanding checks 224 Service charge and other fees 15 Deposits in transit 62

Checking Account Balance Current checkbook balance $ 433 Service charge -15 Interest earned 6 Adjusted checkbook balance $ 424 Current bank statement balance $586 Deposits in transit 62 Outstanding check -224 Adjusted bank balance $424

Item4 2/2 points awarded Item Scored Print References Show correct answers Item 4 Item 4 2 of 2 points awarded Item Scored What would be the value of a savings account started with $2,500, earning 9 percent (compounded annually) after 15 years? Use Exhibit 1-A.

FV = $2,500 × 3.642 = $9,105.00

What amount would you have if you deposited $3,700 a year for 18 years at 5 percent (compounded annually)? Use Exhibit 1-B.

FV = $3,700 × 28.132 = $104,088.40

Brenda Young desires to have $12,000 eight years from now for her daughter's college fund. If she will earn 8 percent (compounded annually) on her money, what amount should she deposit now? Use the present value of a single amount calculation. Use Exhibit 1-C.

PV = $12,000 × 0.540 = $6,480

If a person has ATM fees each month of $21 for 8 years, what would be the total cost of those banking fees?

Total cost = Cost per month × 12 months per year × Number of years = $21 × 12 × 8 = $2,016


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