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MAT 144 Week 4 Discussion 2
Choose two of the following statements and determine whether each makes sense. Support your reasoning with calculations.
- 1. Assuming that a 3-year car loan has a lower interest rate than a 5-year loan, people should always select the 3-year loan.
- 2. After depositing $1,500 in an account with an APR of 4%, my balance at the end of the first year was $(1,500)*(1.04).
- 3. I have $1,000 to invest. One account will pay 5% interest the first year and 10% interest the second year. Another account will pay 10% interest the first year and 5% interest the second year. It does not matter which account I choose, because I will end up with the same amount of money either way.
- 4. I can put away $1,000 towards retirement today or $1,000 ten years from now. Either way I have invested the same amount so I will end up with the same amount when I retire in 25 years.
- 5. I like to keep all my money, so I pay only the minimum required payment on my credit card.
- 6. If I can afford to pay for a car out of pocket, I should still take out a loan and make only the monthly minimum payments. That way, the money in my savings account will continue to grow.
- 7. Bank A compounds interest once a month, and has no charge for a checking account. Bank B compounds interest every day, but there is a $2/month charge for a checking account. Both banks yield 1.2% APR. Bank A is always the best deal.
- 8. If it takes 20 years for a $100 dollar investment to double in value at a certain bank, then it should also take 20 years for a $500 investment to double in value.
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