Problem 5-32 Calculating the Number of Periods. [LO 4] You are saving to buy a $
ID: 2639233 • Letter: P
Question
Problem 5-32 Calculating the Number of Periods. [LO 4]
You are saving to buy a $183,000 house. There are two competing banks in your area, both offering certificates of deposit yielding 6.8 percent.
How long will it take your initial $100,000 investment to reach the desired level at First Bank, which pays simple interest? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places(e.g., 32.16).)
How long will it take your initial $100,000 investment to reach the desired level at Second Bank, which compounds interest monthly? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
You are saving to buy a $183,000 house. There are two competing banks in your area, both offering certificates of deposit yielding 6.8 percent.
Explanation / Answer
Hi,
Please find the correct answers as follows:
Requirement 1:
Amount = investment + investment*rate*time
=>183000 = 100000+100000*6.8%*time
=> time = (183000-100000)/(6.8%*100000)
=12.21 years
hence, the correct answer is 12.21 years
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Requirement 2:
Amount = investment*(1+rate/12)^(time)
=>183000 = 100000*(1+6.8%/12)^(time)
=> time = 106.95 months or 8.91 years
hence, the correct answer is 106.95 months or 8.91 years
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