Time Value Of Money And Interest Rates

Submitted By Seirim-Tjong
Words: 1320
Pages: 6
Open Document
Q1. Time Value of Money and Interest Rates
Bank Investment Scenarios
a)
According to the question given David invests $10,000 in a 6 months term deposit with National Australia Bank. Refer to the term deposit interest rates of National Australia Bank on investment, the 6 months interest rate is 4.15% per annum, compounded annually. Therefore dividing 4.15% by two can get the real interest rate, which is 2.075%.

By using the formula above, which be able to calculate the interest receivable by David after maturity of investment.
David’s investment Scenarios
Principle Amount ($)
10,000
Period (months)
6
NAB interest rate (%)
4.15
Interest Receivable ($)
207.50
Maturity Value ($)
10,207.50

The interest received by David after 6 months will be $207.50 and the maturity value (principle amount + interest receivable amount) is $10,207.50.

b)
Refers to the question given, Sofia decides to invest $10,000 in a term deposit of 90-day with National Australia Bank. The only different between Sofia and David is the period of deposit in the bank different. David chooses the 6 months deposit, however Sofia chooses only 90-day deposit. Because of the time period different, it makes the return investment strategy different.
Now, let’s look at the interest received by Sofia for the first investment. Refer to the term deposit interest rates of National Australia Bank on investment, the 90-days interest rate is 4.10% per annum, compounded annually. Therefore dividing 4.10% by 90day out of 360 days can get the real interest rate, which is 1.011%.Again by using the formula from the question above:

Sofia’s investment Scenarios
Principle Amount ($)
10,000
Period (days)
90
NAB interest rate (%)
4.10
Interest Receivable ($)
101.10
Maturity Value ($)
10,101.10

For the first investment, the interest received by Sofia after 90-days will be $101.10 and the maturity value (principle amount + interest receivable amount) is $10,101.10.
Again, Sofia re-invest the Principle $10,000 in another 90-day term deposit. Assuming the term deposit rates did not change over time. Therefore the calculation for her interest will be the same as the first time.

Interest receivable 1
$101.10

Interest receivable 2
$101.10

Interest expected

$202.20
From the table above, Sofia receives $202.20 which is less than what David receives for his fixed 6 months term deposit ($207.50).
c)
The question given that Jack and Sandra both deposited $10,000 in term deposit with National Australia Bank for period of 9 months and 12 months respectively. The 9 months interest rate with deposits at 3.05% per annum whereas the 12 months interest rate with deposits at 4.20% per annum.
Interest receivable by Jack at maturity of his deposit with NAB = $10,000 x (3.05% x 9/12) = $228.75
Jack’s investment Scenarios
Principle Amount ($)
10,000
Period (months)
9
NAB interest rate (%)
3.05
Interest Receivable ($)
228.75
Maturity Value ($)
10,228.75

Interest receivable by Sandra at maturity of her deposit with NAB = 10000 x (4.20% x 12/12) = $420.00
Sandra’s investment Scenarios
Principle Amount ($)
10,000
Period (months)
12
NAB interest rate (%)
4.20
Interest Receivable ($)
420.00
Maturity Value ($)
10,420.00

At this stage, Jack will be entitled to receive $10,228.75 for his maturity value and Sandra would be receiving $10,420.00 for her maturity value.
However, the case given that Jack wishes to earn the same amount at maturity as Sandra which is $10,420.00. He would like to re-invest the money after completion of 9 months deposit and start another 3 months deposit. To calculate the 3 months interest rate this was required by Jack.
Jack’s maturity value after 9 months is $10,228.75 which will become the new principal amount for Jack. And he is going to invest for 3 months to match Sandra’s maturity period. Here is the table to show clear about that.
Jack’s re-investment Scenarios
Show More

Related Documents: Time Value Of Money And Interest Rates

Assignment 3 Assignment 1

Seeronie Singh AC502-Business Law Unit 3 Assignment #1 Final Project Part 1-Research Paper 1 Professor Lerner January 7, 2014 TABLE OF CONTENTS I. INTRODUCTION ………………………………………………………....…..……………....1 II. SECURITIES ACT OF 1933 AND 1934………………………….…....……….…………....1 II.1 SECURITIES AND EXCHANGE COMMISSION V. SUBAYE, INC ...……….....3 III. THE FOREIGN CORRUPT PRACTICES ACT OF 1977.………...…………...…………....4 III.1 THE BANANAGATE SCANDAL...………….……………………..…..………….5…

Words 2373 - Pages 10

P1 Assignment 1 Assignment

PHYS P15 - First Assignment due October 25th 2013 This assignment is meant to be engaging and thought-provoking rather than technically challenging. I don’t want any submissions to exceed 2-3 printed pages. I am completely relaxed about word count, format, and so on, and don’t care about how you format any references or sources you might provide – just make sure that they are coherent enough for me to track down if I want to. Although we are into the age of computers, I will require…

Words 1263 - Pages 6

Assignment 1 Essay

Analytics Assignment 1 Please submit the following to Cathy at labric@yorku.ca, no later than 11:30 on the day the assignment is due:    A pdf copy of your write up (and appendices as necessary). A copy of the SAS script you used to complete your analyses. A pdf copy of the output from your SAS procedures. You may direct your SAS output to a pdf as follows: ods pdf file=’full system name of the output pdf file’; run; your sas code; ods pdf close; run; General Instructions: Your assignment is to…

Words 1304 - Pages 6

Assignment 1 Essay

Kanwardeep Vig Course code: PSI252 Course name: Conflict Resolution Document: Assignment 1 Grading: 15% Assigned: January 26, 2015 Due date: February 09, 2015 Preventing Drive-by shooting The case that I choose Is that the new “Bill Would Boost Police Powers in Preventing Drive- by Shootings: MPP Mike Colle” This was brought up recently that there have been many deaths on the streets of Toronto by hands on Shooters. When drivers are caught with this bill there would be licence suspension and fines…

Words 416 - Pages 2

Assignment 1 Essay

Written Assignment 1 My profession is in the United States Navy as a Boatswain's Mate. Boatswain's Mates is an old an honorable rate in the navy dating back to days of sailing. When I first came in the navy as a Deck Seamen there wasn't any work to be done with any thing having to do with technology to much. It was more of here's a paint brush, and now get to work. Since then I have moved up a few pay grades and deal with a bit more than just painting, sweeping, and cleaning.…

Words 577 - Pages 3

Nt1310 Unit 1 Assignment 1

1. Describe what you did. This does not mean that you copy and paste from what you have posted or the assignments you have prepared. You need to describe what you did and how you did it. I have researched over the internet to create the flowchart. As I mentioned earlier that I always get help from instructor’s example. What I am facing now is time management. Not getting enough time to research more on the particular topic. I have to put some extra time at my job as one of the projects is going to…

Words 538 - Pages 3

Assignment 1 Essay

Assignment 1 MDSE 5240 Global Fashion Retailing Name: Linh Le Date: 02/01/2015 Assignment 1 Importance of fashion in the global market Clothing demands are beyond of people’s regularly basic need that is to keep human body warm. Many people today like wearing something that makes them feel comfortable, nice, happy, and even some have confident feeling when wearing clothes with a designer label on it. From social and cultural perspective, fashion is to show your personality…

Words 1197 - Pages 5

assignment 1 Essay

CO250 I NTRODUCTION TO O PTIMIZATION – HW 1 Due Date: Friday, January 13th, by 2PM, in the drop box outside the Tutorial Center. L ATE ASSIGNMENTS WILL NOT BE GRADED . Important information: While it is acceptable to discuss the course material and the assignments, you are expected to do the assignments on your own. Copying or paraphrasing a solution from some fellow student or old solutions from previous offerings of related courses qualifies as cheating. For more details review the official…

Words 1358 - Pages 6

Assignment 1 Essay

Course Schedule Course Modules Review and Practice Exam Preparation Resources Assignment 1 (Session 3 — Spring) Print This assignment requires you to apply the knowledge you have gained in FA3 through to the end of Module 5 and in your previous financial accounting courses. It is estimated that this assignment should take approximately six hours to complete. It is graded out of 50 marks — 20 marks for Question 1, 8 marks for Question 2, and 22 marks for Question 3. It is worth 5% of your final grade…

Words 2340 - Pages 10

Sh46501 Task 1 Assignment 1

Text based Report page 1 Student name Kelly Williams –Hall Student number SH46502/ukoc Date 18/04/2015 Learning outcome Task 1 Assessment Criteria Assignment 4 My roles and responsibilities are: To safeguard children at all times Behaviour management where needed To supervise children inside and out To plan and prepare resources for activities to support all areas of development To support the class teachers where needed To support children in all areas of their development To be flexible in my…

Words 5823 - Pages 24