Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly ...
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Transcript of Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly ...
![Page 1: Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly Find equivalent annually.](https://reader036.fdocuments.in/reader036/viewer/2022062409/5697bf891a28abf838c8a158/html5/thumbnails/1.jpg)
Which rate is better if you’re a saver?
7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly
Find equivalent annually compounded rate of interest and then compare
![Page 2: Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly Find equivalent annually.](https://reader036.fdocuments.in/reader036/viewer/2022062409/5697bf891a28abf838c8a158/html5/thumbnails/2.jpg)
Second function of Number 2 on Calculator:
ICONV
3 Variables: NOM = stated annual rate (nominal rate) C/Y = compounding periods per year EFF = effective annually compounded rate
of interest (EAR)
![Page 3: Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly Find equivalent annually.](https://reader036.fdocuments.in/reader036/viewer/2022062409/5697bf891a28abf838c8a158/html5/thumbnails/3.jpg)
Say your credit card balance remains at $2,000 every month. (You make payments but new purchases and interest charges keep it at exactly $2,000 each month.)
Interest rate = 22.9% compounded monthly How is monthly interest calculated? Annual
interest? Why is true cost to borrower greater than
22.9%?
![Page 4: Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly Find equivalent annually.](https://reader036.fdocuments.in/reader036/viewer/2022062409/5697bf891a28abf838c8a158/html5/thumbnails/4.jpg)
Borrow $100,000 for 15 years. Repay in equal monthly payments (part principal, part interest).
Compare interest rate of 8% compounded annually to 8% compounded monthly.
Under which rate do you pay more interest?
![Page 5: Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly Find equivalent annually.](https://reader036.fdocuments.in/reader036/viewer/2022062409/5697bf891a28abf838c8a158/html5/thumbnails/5.jpg)
Savers love frequent compounding of interest
Borrowers don’t like it, but they don’t have any choice!
![Page 6: Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly Find equivalent annually.](https://reader036.fdocuments.in/reader036/viewer/2022062409/5697bf891a28abf838c8a158/html5/thumbnails/6.jpg)
Deposit $400 monthly at the end of each month into a 401K. Deposits earn an average of 5%, compounded monthly.
How much is in the account after 45 years?
How much of that did you contribute yourself?
![Page 7: Which rate is better if you’re a saver? 7.30% compounded quarterly 7.275% compounded monthly 7.25% compounded weekly Find equivalent annually.](https://reader036.fdocuments.in/reader036/viewer/2022062409/5697bf891a28abf838c8a158/html5/thumbnails/7.jpg)
Suppose you switch the account balance to a safer investment after 45 years (upon retirement) that pays only 3% interest, compounded monthly.
What equal amount could you withdraw, each month, from your account over a 20 year period to have a zero balance in the account after the last withdrawal?