Question

Charley wants to have $950,000 when he retires in a year. If he currently has $900,000 to put in a 1-year CD, which of these APRs and compounding periods will allow him to reach his goal?
A. An APR of 5.44% compounded semiannually
B. An APR of 5.42% compounded monthly
C. An APR of 5.34% compounded daily
D. An APR of 5.43% compounded quarterly

Answer 1

Charlie needs an effective rate of 950/900 -1 = 5.555%.

A) 1.0272^2 ⇒ 5.514% . . . . . . . . . . . . not enough

B) 1.0045166667^12 ⇒ 5.557% . . . . sufficient to reach the goal

C) 1.000146301^365 ⇒ 5.485% . . . . not enough

D) 1.013575^4 ⇒ 5.542% . . . . . . . . . .not enough