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Forums › Ask CIMA Tutor Forums › Ask CIMA F1 Tutor Forums › Anual return question – how do you work out this question
An entity has $100,000 to invest for a period of 12 months. Four different deposit account options are available with the following interest payable:
1. 6.50% a year, paid at the end of the year
2. 6.20% a year, paid quarterly
3. 6.45% a year, paid six monthly
4. 6.00% a year, paid monthly
Which option would give the entity the best return?
100000 x 1.065=106500
6.2÷ 4 =1.55
So 100000 x (1.0155^4)=106345.65
6.45÷2=3.225
100000 x (1.03225^2)=106554.01
6÷12=0.5
100000x(1.005^12)=106167.78
So the answer is once every six months at above rates. Please ask if you do not understand what I have tried to do with the above calculations.
thank you i can follow.
You are welcome.
Apologies to tutor for replying to this question.It was only when I looked back that I realised it was on an ask tutor forum.
@mrjonbain said:
Apologies to tutor for replying to this question.It was only when I looked back that I realised it was on an ask tutor forum.
Ha ha! Don’t worry, I’m impressed at you getting it right and explaining it well too. Top work!