You are a young personal financial adviser. Molly, one of your clients approached you for consultation about her plan to save aside $450,000 for her child’s higher educationin United States 15 years from now. Molly has a saving of $120,000 and is considering different alternative options:Investment 1: Investing that $120,000 in a saving account for 15 years. There are two banks for her choice. Bank A pays a rate of return of 8.5% annually, compounding semi-annually. Bank B pays a rate of return of 8.45 annually, compounding quarterly.Investment 2: Putting exactly an equal amount of money into ANZ Investment Fund at the end of each month for 15 years to get 330 000 she still shorts of now. The fund is offering a rate of return 7% per year, compounding monthly.Identify which Bank should Molly choose in Investment 1 by computing the effective annual interest rate (EAR)?
You are a young personal financial adviser. Molly, one of your clients approached you for consultation about her plan to save aside $450,000 for her child’s higher educationin United States 15 years from now. Molly has a saving of $120,000 and is considering different alternative options:Investment
1: Investing that $120,000 in a saving account for 15 years. There are two banks for her choice. Bank A pays a
2: Putting exactly an equal amount of money into ANZ Investment Fund at the end of each month for 15 years to get 330 000 she still shorts of now. The fund is offering a rate of return 7% per year, compounding monthly.Identify which Bank should Molly choose in Investment 1 by computing the effective annual interest rate (EAR)?
Effective annual interest rate (EAR)- The effective annual interest rate is the real return on a saving account or any interest-paying investment when the effects of compounding over time are taken into account. It is called the effective interest rate, the effective rate, or the annual equivalent rate.
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