Chapter 9 Compound Interest

[AMH1]Created by the merger of Bank of America and NationsBank, the Bank of America now reaches from coast to coast, and 190 countries around the world. The look of the institution is changing, but not the client commitment. Bank of America is committed to understanding and supporting business and financial needs of corporations, businesses, and individuals. Bank of America's financial specialists are trained to give the client the level of attention and tailored financial advice needed. The specialists focus on the client's goals. Bank of America has the qualified workforce to manage transactions of all sizes and degrees of complexity.

Bank of America has reached a new level of banking. The company's comprehensive services and products have expanded to meet the needs of the increased complexity of today's finances.

One new level of banking offered by Bank of America is premier banking. The premier banking service provides clients with a personal client manager. This experienced professional takes the time to assist the client in developing and achieving his or her personal goals and objectives. A premier banking client may take advantage of other benefits and privileges in addition to the client manager. These benefits include convenient appointments, discounts, and preferred rates on a wide range of services.

If a client is interested in planning for retirement, Bank of America investment services can help. The investment professional will work with the client to keep investments in line with the client's goals. The client is offered a broad range of stocks, bonds, and mutual funds with a great deal of flexibility in investment choices.

Bank of America makes it easier to plan for refinancing a home by offering shorter-term mortgages or a new line of credit for unexpected expenses. Bank of America offers preapproved mortgage loans, specialty loans for businesses, home equity loans, and platinum credit cards.

All this information and more can be found at www.bankamerica.com.

Problem:

Preparation:

In preparation for this problem,

• Review and understand the use of the Compound Interest Table
• Try using different search engines to access information on the Bank of America. Some search engines are www.yahoo.com, www.infoseek.com, and www.excite.com.
• Compile and organize available information. Include any URLs and the date information was collected.

1. Bank of America is the result of a recent merger between Bank of America and NationsBank. In the business world, terms like merger and acquisitions are often used. Research the Internet, and answer the following. (If you are having difficulty locating a Web site, try www.investorwords.com.)
   1. Define merger and acquisition.
   2. There are three major types of corporate mergers: vertical, horizontal, and conglomerate. Define each type and explain what type of merger Bank of America and NationsBank is considered.
   3. Visit www.mergers-acquisitions.com/valu.html and discuss some points to be considered before a merger takes place.

2. Interest that is calculated not only on the initial principal but also on the accumulated interest is referred to as compound interest. Use the compound interest table on page 354 in your textbook to calculate the following compound interest.
   1. Assume that you had a savings account at Bank of America that was compounded quarterly for three years. Your original principal was $4500 and the interest rate was 8%. Calculate the compound interest.
   2. Assume your original principal was $8900 and the interest rate was 8% compounded quarterly for five years. What is the compound interest?

3. The banking system is changing. Consumers can now bank from home, have direct deposits and payments, and use a smart card or an electric purse. Some people predict a "cashless society" in the future. Visit www.chi.frb.org and select Publications, then Publication Index and discuss the following topics:
   1. What is EFT and what are its advantages?
   2. Two electronic payment methods that are becoming increasingly popular are stored-value and smart cards. What is a smart card?
   3. Electronic money is increasingly popular. Nevertheless, many consumers are reluctant to abandon cash and checks. After reviewing the Web site, discuss your opinions on this topic. Base your opinion on facts collected during your research. Give the URLs of Web sites you visited.

4. Chapter 9 of your textbook deals with the time value of money. Review the chapter, and answer the following questions:
   1. Expalin present value, future value, payment, interest rate per compounding period, and number of compounding periods as they relate to time value of money.
   2. You wish to save $10,000 for a trip to Italy in four years. At 8% interest compounded quarterly, how much do you need to deposit now to achieve your savings goal? Use the present value of a dollar table on page 372 of your textbook.

Include the date in your answers.

© Copyright 2000 Addison Wesley Longman, Inc.