You Have Recently Come Across a Rather Large Amount of Money

question 17

Essay

You have recently come across a rather large amount of money. Because you have just finished the financial math lectures in your college math class, you decide that you should invest the money in a long-term CD (certificate of deposit). The financial section of your local paper has the following advertisements.
Countryside Credit Union
- 10 year CD with an APR of 5.44 % compounded monthly.
Northeast Bank and Trust
- 10 year CD with an APR of 5.43 % compounded continuously.
Which institution is offering a better deal? Explain.

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Definitions:

Pension Expense

The cost recognized in an accounting period related to the provision of pension benefits to employees.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Expected Rate Of Return

The anticipated amount of profit or loss an investment will generate over a specific period, expressed as a percentage.

Interest Cost Component

Part of pension expense calculation that represents the increase in the pension obligation due to the passage of time.