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Note: All interest rates are to be assumed to be yearly interest rates.
Question 1 (10 points)
1. You decide to invest $15000 into a bank account that that is compounding its interest monthly. Assuming the bank is paying out an interest rate of the current prime rate – 1% (In the event that prime – 1% is less than 1%, use 1%), and the investment is for 5 years
a) How much money (total) do you have after the 5 years pass?
b) How much do you earn in interest over the 5 years?
Question 2 (10 points)
2. You wish to have $500,000 saved up in 30 years. Assuming that you can get an interest rate of prime + 5% on your investment (compounded quarterly.)
a) How much do you need to invest today to have $500,000 30 years in the future?
b) How much of that total is interest?
Question 3 (10 points)
3. You borrow $50,000 at 5% interest (compounded daily).
a) After 1 year passes, you pay off $25000 of the loan. How much do you still owe on the loan?
b) After another year passes, you wish to pay off the loan. How much do you need to pay to pay it off?
Essay
(15 points)
4. While everyone dreams of high interest rates for investments, usually high interest rates come with other disadvantages. Using the interest or other sources, research and write an essay on the advantages and disadvantages of higher interest rates on investments. Look at factors like risk, reward, and possible other things that would change to balance out the higher interest rates.
Requirements for essay
·
Write your essay in this document – do not save it in a separate file.
· You must clearly state your position with well-structured paragraphs using proper grammar, spelling, and sentence structure.
· This is not an “opinion” question – you must offer evidence to support your position, using properly-cited sources.
· Your answer must be between ¾-1 page in length.
· You must cite and reference at least one source (book, website, periodical) using APA format. The required website counts as one source.
