Case 1
1. Consider a 1-Year $10,000 CD
A. The future value of a $10,000 CD that has a maturity of 1 year at maturity with 10% interest is $11,000. Financial Calculator Inputs: $ -10,000=PV, 1=N, I=10, FV=? ($11,000) B. The future value of a 1-year, $10,000 CD after one year at an interest rate of 5.0% is $10,500. Financial Calculator Inputs: $-10,000=PV, 1=N, 5=I, FV=? ($10,500) The future value of a 1-year, $10,000 CD after one year at an interest rate of 15.0% is $11,500. Financial Calculator Inputs: $-10,000=PV, 1-N, 15=I, FV=? ($11,500) C. The effective annual rate of First National Bank’s CD offering a 10% nominal interest rate compounded semiannually is 10.25%.
Calculations: (1+.10/2)^2 -1 =.1025
The future value of a $10,000 dollar CD compounded semiannually for one year at The First National Bank is $11,025 Calculations: FV=$10,000(1.1025) FV=$11,025
D. Using a 360 day bankers year, the Effective Annual Rate of Pacific Trust’s
10% interest CD compounded daily is 10.52% Calculations: (1+.10/365)^365 –1 =.1052 The future value of Pacific Trust’s $10,000 CD with an effective annual rate Of 10.52% after one year is $11,052. Financial Calculator Inputs: $ -10,000=PV, 1=N, 10.52=I, FV=? ($11,052)
First National Bank would have to offer a nominal rate of 10.26% on it’s
Semiannually compounded CD to be competitive with Pacific Trust’s daily compounding CD.
Calculations: $10,000(1+X/2)^2 = $11,052”FV of Pacific Trust’s CD”
(1+X/2)^2 = 1.052 (Take square root of both sides of equation) (1+X/2) =1 .0513-(1) ( X/2=.0513(*2) ( X=.1026
2. Considering a 5-Year CD, rework parts a-d of question 1
A. The value at maturity of a $10,000 CD with a 10% interest rate is $16,105.10 Inputs:
A. The future value of a $10,000 CD that has a maturity of 1 year at maturity with 10% interest is $11,000. Financial Calculator Inputs: $ -10,000=PV, 1=N, I=10, FV=? ($11,000) B. The future value of a 1-year, $10,000 CD after one year at an interest rate of 5.0% is $10,500. Financial Calculator Inputs: $-10,000=PV, 1=N, 5=I, FV=? ($10,500) The future value of a 1-year, $10,000 CD after one year at an interest rate of 15.0% is $11,500. Financial Calculator Inputs: $-10,000=PV, 1-N, 15=I, FV=? ($11,500) C. The effective annual rate of First National Bank’s CD offering a 10% nominal interest rate compounded semiannually is 10.25%.
Calculations: (1+.10/2)^2 -1 =.1025
The future value of a $10,000 dollar CD compounded semiannually for one year at The First National Bank is $11,025 Calculations: FV=$10,000(1.1025) FV=$11,025
D. Using a 360 day bankers year, the Effective Annual Rate of Pacific Trust’s
10% interest CD compounded daily is 10.52% Calculations: (1+.10/365)^365 –1 =.1052 The future value of Pacific Trust’s $10,000 CD with an effective annual rate Of 10.52% after one year is $11,052. Financial Calculator Inputs: $ -10,000=PV, 1=N, 10.52=I, FV=? ($11,052)
First National Bank would have to offer a nominal rate of 10.26% on it’s
Semiannually compounded CD to be competitive with Pacific Trust’s daily compounding CD.
Calculations: $10,000(1+X/2)^2 = $11,052”FV of Pacific Trust’s CD”
(1+X/2)^2 = 1.052 (Take square root of both sides of equation) (1+X/2) =1 .0513-(1) ( X/2=.0513(*2) ( X=.1026
2. Considering a 5-Year CD, rework parts a-d of question 1
A. The value at maturity of a $10,000 CD with a 10% interest rate is $16,105.10 Inputs: