Your Current Bank Is Paying 6

question 39

Multiple Choice

Your current bank is paying 6.25% simple interest rate. You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually. To maximize your return you would choose:

• A) your current bank
• B) Harris Bank
• C) First Chicago bank
• D) you are indifferent, because the effective interest rate for all three banks is the same

Recognize revenue allocation for bundled sales involving products and services.

Assess the internal control system for handling cash and suggest improvements.

Execute bank reconciliations and related journal entries.

Apply accounting principles to international transactions involving foreign currency.

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Definitions:

Effective Yield

A measure of the return on an investment taking into account the effect of compounding interest, more accurate than simple yield calculations.

Present Value Factors

Multipliers used in calculating the present value of a future amount of money or stream of cash flows given a specified rate of return or discount rate.

Floating-rate Debt

Debt instruments, such as bonds or loans, that have variable interest rates that adjust over the tenure of the obligation.

Market Interest Rate

The prevailing rate at which interest is offered on deposits or loans in the financial markets for a particular term and risk profile.