(a) If a saving account earns interest at 12% per year but is compounded quarterly, what is the effectively yearly interest rate? (b) Suppose we deposit $6000 now and $9000 next year to the saving account, how much will be in the account in year 10, using the effectively interest rate. and draw the cash flow diagram (c) What is the upper bound of the effective yearly interest rate? Hint: Consider interest rate compounded continuously
(a) If a saving account earns interest at 12% per year but is compounded quarterly, what is the effectively yearly interest rate? (b) Suppose we deposit $6000 now and $9000 next year to the saving account, how much will be in the account in year 10, using the effectively interest rate. and draw the cash flow diagram (c) What is the upper bound of the effective yearly interest rate? Hint: Consider interest rate compounded continuously
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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(a) If a saving account earns interest at 12% per year but is compounded
quarterly, what is the effectively yearly interest rate?
(b) Suppose we deposit $6000 now and $9000 next year to the saving
account, how much will be in the account in year 10, using the
effectively interest rate. and draw the cash flow diagram
(c) What is the upper bound of the effective yearly interest rate?
Hint: Consider interest rate compounded continuously
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