Question

You are saving to buy a $188,000 house. There are two competing banks in your area, both offering certificates of deposit yielding 7.3 percent. How long will it take your initial $105,000 investment to reach the desired level at First Bank, which pays simple interest? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of years How long will it take your initial $105,000 investment to reach the desired level at Second Bank, which compounds interest monthly?

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

You are saving to buy a $188,000 house. There are two competing banks in your area, both offering certificates of deposit yielding 7.3 percent.

Bank A:

initial  investment $105,000

n=[ln(FV/PV)]/ln(1+r)

n=[ln(188000/105000)]/ln(1+0.073)= 8.26 years

Bank B:

Effective rate= 0.073/12= 0.0061

n=[ln(188000/105000)]/ln(1+0.0061)= 95.78 months/12= 7.98 years