posted by Sammy
Ben Garrison invested $15,000 at 5% compounded daily in a credit union account that matures in 1 year. He also invested 20000 at 5.25% compounded monthly in a Silver Screen account that matures in 4 years. (a) What is the interest earned at maturity for both accounts? (b) What is the annual percentage yield for each account?
credit union investment
= 15000(1 + .05/365)^365 = $15,769.01
silver screen account
= 20000(1 + .0525/12)^12
total after 1 year = 36,844.65 on an investment of 35,000
To make any comparison, we have to evaluate at the same "time spot".
thus a) is not a valid question, we cannot compare the interest at the end of year 1 with that at end of year 4
so 35000(1+i) = 36844.65
1+i = 1.0527
the equivalent annual rate is 5.27%