Jane Is Having Difficulty Deciding Whether to Put Her Savings

question 49

Multiple Choice

Jane is having difficulty deciding whether to put her savings in the Mystic Bank or in the Four Rivers Bank. Mystic offers a 12% rate compounded quarterly, and Four Rivers offers 14% compounded semiannually. Jane has $40,000 to invest and expects to withdraw the money at the end of five years. The best deal is:

• A) Four Rivers
• B) Four Rivers for first two years
• C) Mystic
• D) Mystic for last two years
• E) None of these

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Definitions:

Purchasing Power Parity

A financial model that evaluates the currencies of various nations by using a "basket of goods" method, indicating that exchange rates need to balance out so the cost of the same goods is the same in different countries.

Russian Rubles

The currency used in Russia, symbolized as RUB.

Euros

The official currency of 19 out of the 27 member states of the European Union, also used as a major global currency for international trade and investment.

Purchasing Power Parity

An economic theory that states that the exchange rate between two currencies is equal to the ratio of the currencies' respective purchasing powers.