Question

Question 13 1 pts Tom plans to save $107 a month, starting today, for 16 years. Dick plans to save $107 a month for 16 years, starting one month from today. Both Tom and Dick expect to earn an average return of 5.7 percent APR on their savings and both will make the same number of deposits. At the end of the 16 years, how much more (in $) will Tom have than Dick? Answer to two decimals.

Answer 1

Answer 13:

$158.78

Working:

PMT = $107

NPER = 16 * 12 = 192

Monthly interest rate = 5.7%/12

PV = 0

Tom deposits at the beginning of period.

The future value for Tom = FV (rate, nper, pmt, pv, type) = FV (5.7%/12, 192, -107, 0, 1) = $33,586.19

Dik deposits at the end of period.

The future value for Dik = FV (rate, nper, pmt, pv, type) = FV (5.7%/12, 192, -107, 0, 0) = $33,427.41

Amount TOM will be higher than Dick's by = 33586.19 - 33427.41 = $158.78

Answer 14:

6.09%

Working:

Bank A:

Effective annual rate (EAR) = (1 + 6.03%/4)^4 - 1 = 6.17%

Bank B:

APR = 6.03% - 0.10% = 5.93%

Effective annual rate (EAR) = (1 + 5.93%/8)^8 - 1 = 6.09%

As EAR of bank B is lower; hence bank B's loan should be accepted. EAR = 6.09%