Asked by Anganathi Ngodwane on May 01, 2024
Verified
Sergon has $5,000 to invest for six months. The rates offered on three-month and six-month term deposits at his bank are 3.5%, 3.8%, respectively. He is trying to choose between the six-month term deposit and two consecutive three-month term deposits. What would the simple interest rate on three-month term deposits have to be, three months from now, for Sergon to end up in the same financial position with either alternative? Assume that he would place both the principal and interest from the first three-month term deposit in the second three-month term deposit.
Term Deposits
Fixed amount of money held at a financial institution for a fixed term, earning a guaranteed interest rate.
Simple Interest
Simple interest is a method of calculating the interest charge on a loan based on the original principal amount and the interest rate, without compounding.
- Evaluate the concluding value of investment and lending products, covering certificates of deposit and unpaid invoices.
- Learn to employ the concept of simple interest in differing financial circumstances.
- Compare financial alternatives to make informed decisions regarding investments and purchases.
Verified Answer
KA
Learning Objectives
- Evaluate the concluding value of investment and lending products, covering certificates of deposit and unpaid invoices.
- Learn to employ the concept of simple interest in differing financial circumstances.
- Compare financial alternatives to make informed decisions regarding investments and purchases.