Question

questions 4-7

4) You are depositing $2000 in a 36-month CD that pays 3.5% interest each year. How much interest will you accrue if you hold the CD until maturity? Show work 5) You have $12,000 excess cash to invest, after you fully funded your emergency fund. A 9,500 T-bill can be purchased (maturing to value at $12,000 after one year), or you can buy three --$4000 CD that can be purchased with a guaranteed 9% return after 12 months. Which will give a better return (in percentages)? Show work. 6) You purchase a $20,000 T-bill for $18300. A few months later you sold the T-bill for $19,500. What was the return on the t-bill? Show work. 7) You have excess cash. You anticipate that you will need to have 12 months' worth of expenses covered. You want to make sure that you can have access to your cash, but also gain interest as well, throughout the 12 months. Your expenses are $2300 per month. You have $25,000 in cash. You want to put it in various accounts or funds for: 1 month, 3 months, 6 months, and 12 month. The remaining amounts you want to have put into something that will earn you the highest interest rates. How would you allocate them in various accounts (checking, NOW, savings, MMDA, CDs, T-Bills, Mutual funds, brokerage accounts, asset management accounts), in order to manage your liquidity (have access to your money and still gain interest)?

Answer 1

4.

FV = PV * (1+r)^n
= $2,000 * (1+0.035)^3
= $2,000 * 1.108717875
= $2,217.435
Future value = $2,217.435

Interest accrued = Future value - Present value
=$2,217.44 - $2,000
= $217.44 (Approx)

NOTE: As per HOMEWORKLIB RULES, only first question can be answered. Post the rest of the questions separately.