Investment???
August 25th, 2010
Joanna decided to invest the 0 that she had received as graduation presents. She earned 6% interest comounded monthly. How much interest did she earn with this investment after 3 years?
a) .54
b)
c) .34
d) 7.54
e) 8.34
If you invest 00 for 4 years in each of the following Guaranteed Investment Certificate (GICs), how much greater are your earnings with the best one than with the worst one?
1. 9% compounded annually.
2. 8.75% compounded quarterly
3. 8.5% compounded daily
a) .14
b) .69
c) .83
d) .04
e) .73
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Posted in Online Stock Investment | 
Tags: 3 years, earnings, graduation, guaranteed investment certificate, joanna
1. 500*(1 + .06/12)^(12*3) = Future value = 598.34
Since 500 was your investment your interest was 98.34
2. We first need to see which is the largest and which is the smallest
interest (i) compounded m times per year (i^m) is calculated as:
i^m = (1 + i/m)^m (note this results in 1+i)
9% annually => m = 1 => i =9%
8.75% quarterly => m =4 => (1+ .0875/4)^4 = 9.0413%
8.5% daily => m = 365 => (1 + .085/365)^365 = 8.87%
Best investment = 8.75% quarterly, worst = 8.5% Daily
1000*(1.090413)^4 = 1413.7232
1000*(1.0887)^4 = 1404.8919
difference = 8.83