You have accumulated $8,000 and are looking for the best rate of return that can

Question

You have accumulated $8,000 and are looking for the best rate of return that can be earned over the next year. A bank savings account will pay 6%. A one-year bank certificate of deposit will pay 8%, but the minimum investment is $10,000.

Required
(a)

Calculate the amount of return you would earn if the $8,000 were invested for one year at 6%. (Omit the "$" sign in your response.)

Amount of return $

(b)

Calculate the net amount of return you would earn if $2,000 were borrowed at a cost of 15%, and then $10,000 were invested for one year at 8%. (Omit the "$" sign in your response.)

Net amount of return $

(c)

Calculate the net rate of return on your investment of $8,000 if you accept the strategy of part b. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

(a) Calculate the amount of return you would earn if the $8,000 were invested for one year at 6%. (Omit the "$" sign in your response.) Amount of return $ 8,000*0.06 = $480 Answer: $480 (b) Calculate the net amount of return you would earn if $2,000 were borrowed at a cost of 15%, and then $10,000 were invested for one year at 8%. (Omit the "$" sign in your response.) Net amount of return $ 10000*0.08 – 2,000*0.15 = 800 – 300 = $500 Answr: $500 (c) Calculate the net rate of return on your investment of $8,000 if you accept the strategy of part b. (Round your answer to 2 decimal places. Omit the "%" sign in your response.) 500/8000 = 0.0625 or 6.25% Answr: 6.25%

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.