First Simple Bank pays 8 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 8 years

Question

02-11-2020
Business

contestada

First Simple Bank pays 8 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 8 years

Respuesta :

Otras preguntas

The quicksort is an example of a divide and conquer algorithm in that it divides the sorting problem into smaller problems by dividing the list of items to be s

A cylindrical container with a cross-sectional area of 66.2 cm2 holds a fluid of density 856 kg/m3 . At the bottom of the container the pressure is 119 kPa . As

To make a large poster of the bill of rights to hang on the classroom wall, a poster that is 22 inches by 46 inches is copied. In the classroom version is to be

I would like to have some help please! ❤ thank youu I need help on the 2 question that is "write three expressions containing exponentz so that each expression

the direct consumers of the product are the client public. target markets are defined much more easily. goods are marketed more often than ideas or services. th

A buyer properly revokes the offer after receiving the property condition disclosure and requests the return of the buyer's earnest money the principal broker i

Walter and Janet have three children. Janet has been a stay-at-home mother raising the children. Walter has always worked full time and is always traveling for

A survey of 500 randomly selected adults found that 57% say that they would take a ride in a fully self-driving car. The 95% confidence interval for the true pr

Pregunta 4 De acuerdo a los siguientes textos di que clase de descripción literaria es: • Es una mujer, de estatura mediana, aproximadamente 1.60 Metros, figura

PLEASE HELP Two six-sided fair dice are rolled. The probability that at least one number is odd and the sum of the two numbers is even is *blank . The probabili

amcool amcool · Answer 1 · 2020-11-03T02:47:19+01:00

Answer:

First Complex Bank should set an interest rate of approximately 6.38% if it wants to match First Simple Bank over an investment horizon of 8 years.

Explanation:

Let us first assume that the amount of the investment is $1.

Simple interest refers to an interest that is calculated based on the principal amount only. The formula for calculating the total amount receivable at the end of the maturity period of an investment under a simple interest is given as follows:

A = P * (1 + rt) ……………. (1)

Where;

A = final amount receivable = ?

P = Principal or investment amount = $1

r = interest rate = 8%, or 0.08

t = time or number of years = 8

Substituting the values into equation (1), we have:

A = $1 * (1 + (0.08 * 8)) = $1.64

Compound interest refers to an interest that is calculated based on the principal amount invested and the interest that accumulates on the amount invested. The formula for calculating the total amount receivable at the end of the maturity period of an investment under a compound interest is given as follows:

A = P * (1 + r)^t ……………. (2)

Where;

A = final amount receivable = $1.64

P = Principal or investment amount = $1

r = interest rate = ?

t = time or number of years = 8

Note that we want to calculate the rate that First Complex Bank should set if it wants to match First Simple Bank over an investment horizon of 8 years. That is why we set it final amount receivable to $1.64 (i.e. A = $1.64) as already obtained under simple interest above. We are now to calculate the annual interest rate.

Substituting the values into equation (2) and solve for r, we have:

1.64 = 1 * (1 + r)^8

1.64 / 1 = (1 + r)^8

1.64 = (1 + r)^8

Taking 8th root of both sides, we have:

1.64^(1/8) = ((1 + r)^8)^(1/8)

1.06378896515711 = 1 + r

r = 1.06378896515711 - 1

r = 0.06378896515711, or 6.378896515711%

Approximating to 2 decimal places, we have:

r = 6.38%

Therefore, First Complex Bank should set an interest rate of approximately 6.38% if it wants to match First Simple Bank over an investment horizon of 8 years.