Revision as of 23:02, 17 November 2023 by Admin (Created page with "An investor deposited 1000 in each of Bank X and Bank Y. Bank X credits simple interest at an annual rate of 10% for the first five years and 7% thereafter. Bank Y credits interest at an annual nominal rate of 5% compounded quarterly. The interest credited in the eighth year by Bank Y exceeds the interest credited in the eighth year by Bank X by N. <ul class="mw-excansopts"><li>0.36</li><li>2.14</li><li>20.00</li><li>56.36</li><li>56.93</li></ul> {{soacopyright | 2023 }}")
ABy Admin
Nov 17'23
Exercise
An investor deposited 1000 in each of Bank X and Bank Y. Bank X credits simple interest at an annual rate of 10% for the first five years and 7% thereafter. Bank Y credits interest at an annual nominal rate of 5% compounded quarterly. The interest credited in the eighth year by Bank Y exceeds the interest credited in the eighth year by Bank X by N.
- 0.36
- 2.14
- 20.00
- 56.36
- 56.93
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
ABy Admin
Nov 17'23
Solution: B
With simple interest, the deposit in Bank X earns 1000(0.07) = 70 in year 8. With compound interest, the earning in Bank Y in year 8 is
[[math]]
1000(1.0125)^{32}-1000(1.0125)^{28}=72.14.
[[/math]]
The absolute difference is 2.14.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.