Gce Model Questions Vol1 2021 Commerce Question 9

Practice essay / theory question 9 from the 2021 Gce Model Questions Vol1 Commerce examination. This question covers Banking, Financial Mathematics, Investment Analysis .

Gce Model Questions Vol1 2021 Commerce Essay / Theory
Topics: Banking Financial Mathematics Investment Analysis
Question 9 GCE_MODEL_QUESTIONS_VOL1 • 2021 • COMMERCE • essay

A customer, Mrs. Ade, is considering two investment options offered by her bank: 1. A Fixed‑Deposit (FD) scheme that pays 6 % p.a. compound interest for the first 18 months and then 7 % p.a. compound interest for the remaining period. 2. A 3‑year Government Bond that pays a flat 6.5 % p.a. compound interest. Mrs. Ade intends to invest ₦500 000 in either option and is concerned about the impact of inflation, which is projected to average 4 % per year over the next three years. Answer the following questions:

Question Parts

( a )
Calculate the amount Mrs. Ade will receive at the end of the 3‑year period if she chooses the Fixed‑Deposit scheme. Show all steps.
( b )
Determine the effective annual compound rate (EAR) that would give the same final amount as the Fixed‑Deposit scheme over the 3‑year period.
( c )
Compare the real returns (adjusted for inflation) of the Fixed‑Deposit and the Government Bond. Which investment provides a higher real return? Justify your answer with calculations.
( d )
Discuss two non‑financial factors that Mrs. Ade should consider before deciding between the Fixed‑Deposit and the Government Bond.

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About This Question

This is Gce Model Questions Vol1 2021 Commerce Question 9. It is one of the essay questions from the 2021 Gce Model Questions Vol1 Commerce examination.

The question covers Banking, Financial Mathematics, Investment Analysis .

View More Gce Model Questions Vol1 2021 Commerce Questions More Gce Model Questions Vol1 Practice Questions Back to Questions

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