Financial Report Worksheet

Posted: August 27th, 2021

Financial Report Worksheet

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Institutional Affiliation

Financial Report Worksheet

1. Go to Your Financial Institution’s Website or A Local Financial Institution’s Website and Find the Interest Rate and Compounding Frequency (Monthly, Quarterly, Annually, And So On) For A Savings Account. Record That Here:

The Annual Percentage Yield (APY) offered by Ally bank is 0.55% (Ally, 2021).

2. Use The Compound Interest Formula:  Where R Is The Interest Rate As A Decimal, N Is The Number Of Times It Is Compounded In The Time Frame, T Is The Amount Of Time, And PIs The Starting Value. Calculate Your Balance If You Invest $1,000 For 1 Year

Solution:

P= $1,000

r=0.55% (Annual interest rate)

n=1

t=1

3. Using The Compound Interest Formula, Calculate Your Balance If You Invest $1,000 For 5 Years

Solution:

P= $1,000

r=0.55% (Annual interest rate)

n=1

t=5

4. Now Select a New Compounding Period (Monthly, Quarterly, Annually, And So On) And Redo Your Calculations from Number 2 & 3, Using The Same Interest Rate

Solution:

New compounding period= Quarterly

P= $1,000

r=0.55% (Annual interest rate)

n=4

t=1

New compounding period= Quarterly

P= $1,000

r=0.55% (Annual interest rate)

n=4

t=5

5. Now Select a New Interest Rate from Another Financial Institution That Is Different Than Your Starting One. Redo Your Calculations from Numbers 2 & 3 With The New Rate but Keeping the Same Compounding Frequency That You Used in 2 & 3

The Annual Percentage Yield (APY) offered by Synchrony Financial is 0.50% (Synchronybank, 2021).

Solution:

P= $1,000

r=0.50% (Annual interest rate)

n=1

t=1

Solution:

P= $1,000

r=0.50% (Annual interest rate)

n=1

t=5

6. What Did You Learn About Comparing the Compounding Frequency That Interest Is Compounded?

The compounding amount is calculated on the initial principal (P) that includes the accumulated interests (r) from the previous period (t) on loan or deposit. The amount can be compounded annually, monthly, semi-annually, quarterly, or daily. The compounding frequency is expressed as n in the compounding formula. The interest is compounded continuously in a given period, and the compounding frequency makes a significant variation in compounded amount.  As observed in the above calculations, the higher the compounding frequency, the greater the compound interests amount.

7. What Did You Learn About Comparing the Interest Rate?

Compounding interest is used in calculating the compounded amount from the initial principal (P) using compounding interests (r) from a given period (t) on a loan or deposit. The amount is continuously compounded annually, monthly, semi-annually, quarterly, or daily. The compounding frequency is expressed as n in the compounding formula. The interest rate in the compounded amount has a significant difference in the compounded amount. In the above calculations, it can be noted that the higher the compounding interest rate, the greater the compound interest amount.

8. Is It Better to Have a Slightly Higher Rate or Have Interest Compounded More Often?

From an investor’s perspective, it is better to have a higher compounding frequency as more frequent compounding of interests yields higher benefits to creditors and investors. A higher compounding frequency allows finances to grow at a faster rate compared to high interest rates. However, from a borrower’s perspective, a lower compounding frequency is preferred as more frequent compounding of interests yields a higher cost of funds and the borrower’s amount repaid to the creditors. Therefore, more compounding frequency, such as daily compounding value, yields a higher compounded amount in a savings account, usually expressed as Annual Percentage Yield (APY), rate of return, or cost of borrowing funds. Furthermore, one should consider the compounding frequency when opening a savings account as funds in a higher compounding frequency account have more frequent compounded amounts and higher benefits to the saver. Hence, it is recommended to open a savings account to earn interest.

References

Ally. (2021). Ally Bank Rates – Compare Our Deposit Account Rates | Ally. Retrieved 3 April 2021,       from https://www.ally.com/bank/view-rates/

Synchronybank. (2021). High Yield Savings Accounts – April 2021 Rates | Synchrony Bank.        Retrieved 3 April 2021, from https://www.synchronybank.com/banking/high-yield-    savings/