A Bank Pays 2

question 37

Multiple Choice

A bank pays 2.5% interest on deposits. What is the return on a $1000 deposit after two years if interest is compounded continuously?

• A) $1051.27
• B) $778.80
• C) $1648.72
• D) $1284.03
• E) none of these

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Definitions:

NPV

Net Present Value (NPV) is the calculation used to find today’s value of a future stream of payments, subtracting the initial investment.

Cash Flow

The complete financial movement into and out of a corporation, especially regarding its liquidity.

Equivalent Annual Annuity

A calculation used to compare the returns of investments with different payment schedules by converting them into an equivalent sum received at regular annual intervals.

Cost Of Capital

The minimum rate of return that a business must earn before generating value, representing the opportunity cost of investing resources in a specific company instead of elsewhere.