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A comparison of two types of bank investments

Journal Article


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Abstract


  • Let's suppose a bank customer has $150,000 to invest. The bank says it can

    offer an account where the bank pays interest compounded daily at 3% per annum. As

    an alternative, the bank offers also another account, where the interest rate is 2.5% on

    the first $50,000 and 3.5% on any amount in excess of $50,000, where again the

    interest is compounded daily. The customer wishes to invest the $150,000 for say 5

    years. Which account should the customer choose? If the customer were prepared to

    wait for 10 years instead of 5, would this make a difference to the account the

    customer should choose? Is there much difference between the two choices? Does a

    small change in an interest rate lead to a possibly large change in the outcome? More

    generally, in what ways do the interest rates and the other variables affect the answers

    to such questions?

Publication Date


  • 2017

Citation


  • Nillsen, R. (2017). A comparison of two types of bank investments. Australian Senior Mathematics Journal, 31 (1), 5-18.

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1641&context=eispapers1

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers1/640

Number Of Pages


  • 13

Start Page


  • 5

End Page


  • 18

Volume


  • 31

Issue


  • 1

Place Of Publication


  • Australia

Abstract


  • Let's suppose a bank customer has $150,000 to invest. The bank says it can

    offer an account where the bank pays interest compounded daily at 3% per annum. As

    an alternative, the bank offers also another account, where the interest rate is 2.5% on

    the first $50,000 and 3.5% on any amount in excess of $50,000, where again the

    interest is compounded daily. The customer wishes to invest the $150,000 for say 5

    years. Which account should the customer choose? If the customer were prepared to

    wait for 10 years instead of 5, would this make a difference to the account the

    customer should choose? Is there much difference between the two choices? Does a

    small change in an interest rate lead to a possibly large change in the outcome? More

    generally, in what ways do the interest rates and the other variables affect the answers

    to such questions?

Publication Date


  • 2017

Citation


  • Nillsen, R. (2017). A comparison of two types of bank investments. Australian Senior Mathematics Journal, 31 (1), 5-18.

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1641&context=eispapers1

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers1/640

Number Of Pages


  • 13

Start Page


  • 5

End Page


  • 18

Volume


  • 31

Issue


  • 1

Place Of Publication


  • Australia