Question 1.a)Which bank should Gary choose for a saving account, which bank for a certificate of...

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Question 1.a)Which bank should Gary choose for a saving account, which bank for a certificate of deposit, and which bank for a term loan?b) Gary will invest the donations from a wealthy investor in CDs. How much will the Center have accumulated on the day of the last donation? (Use the CD interest rate offered by the bank you selected for a CD in part a)c) If the Center takes out a 5-year term loan that would be repaid in equal annual installments, how much will it owe to BankSouth if Gary decides to pay off the loan early, at the end of the third year? (Use the term loan interest rate offered by the bank you selected for a term loan in part a.)d) If the Center takes out a 7-year term loan that would be repaid in different annual installments (with the first payment due at the end of year one), how much would the fixed annual installment be at the end of each year from Year 4 through Year 7? (Use the term loan interest rate offered by the bank you selected for a term loan in part a)e) Gary will invest the contributions to the board-designated building fund in CDs. How much will the equal annual contributions in years 5, 6, and 7 have to be to ensure the Center will have sufficient funds to pay for projected facility renovations? (Use the CD interest rate offered by the bank you selected for a CD in part a) (Hint: Use a time line to lay out the year 0-4 and 8-11 annual cash flows and then use Goal Seek in Excel to solve for the year 5-7 cash flows.)

Robert · Accepted Answer

a) Which bank should Gary choose for a saving account, which bank for a certificate of deposit, 
and which bank for a term loan? 
Solution: Calculation of Interest rates under different option and making decision to choose one 
out of the two banks available: 
For all we will convert the rates into one similar rate i.e., Effective Annual Rate EAR to make 
the decision 
Saving Account: 
SUN TRUST: 
Effective Annual Rate EAR = (1+4%/365)
365
-1 
= 4.10% 
BANK SOUTH: 
Effective Annual Rate EAR = (1+4.10%/52)
52
-1 
=4.18% 
Since the EAR of South Bank is more so it should be opt for saving bank. 
Certificate of Deposit 
SUN TRUST: 
Effective Annual Rate EAR = (1+6%/12) 
12
-1 
=6.17% 
BANK SOUTH: 
Effective Annual Rate EAR = 6.10% 
Since the EAR of Sun Trust is more so it should be opt for certificate of deposit.
Term Loan: 
SUN TRUST: 
Effective Annual Rate EAR = (1+8%/4) 
4
-1 
=8.24% 
BANK SOUTH: 
Effective Annual Rate EAR = (1+8.06%/2)
2
-1 
=8.22% 
Since the EAR of South Bank is less so it should be opt for Term Loan.
b) Gary will invest the donations from a wealthy investor in CDs. How much will the Center have 
accumulated on the day of the last donation? (Use the CD interest rate offered by the bank you 
selected for a CD in question 1.)
For CD Sun Trust Bank is selected as it is giving more rate of interest: 6.17% 
Year 
Deposit 
Future value with interest 
@6.17% 
Future 
value 
0 250000 =250000(1+6.17/100)
12
 512816.30 
1 75,000 =75000(1+6.17/100)
11
 144904.29 
2 75,000 =75000(1+6.17/100)
10
 136483.28 
3 75,000 =75000(1+6.17/100)
9
 128551.64 
4 75,000 =75000(1+6.17/100)
8
 121080.

Question 1. a)Which bank should Gary choose for a saving account, which bank for a certificate of deposit, and which bank for a term loan? b) Gary will invest the donations from a wealthy investor in...

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