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Equivalence of Rate of Return and Interest Rate for Guaranteed Bank Deposits
For a guaranteed bank deposit, the rate of return is identical to the stated interest rate. This serves as a clear, specific instance of how return is calculated for a simple, risk-free asset.
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Introduction to Macroeconomics Course
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
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Equivalence of Rate of Return and Interest Rate for Guaranteed Bank Deposits
Distinction Between Rate of Return and Interest Rate
Definition of Rate of Return
Market Price as a Determinant of Rate of Return for Marketable Assets
Comparison of Average Real Returns on Equities, Housing, and Policy-Rate Assets
Definition of Volatility in Investment Returns
A company is evaluating two mutually exclusive projects. Project Alpha requires an initial investment of $20,000 and is expected to yield a total of $22,000 after one year. Project Beta requires an initial investment of $50,000 and is expected to yield a total of $54,000 after one year. If the company's primary decision criterion is to select the project that provides the highest percentage gain on the initial funds invested, which project should it choose?
Analyzing Sources of Investment Gain
Investment Decision Analysis
Calculating Investment Profitability
An investor is considering several one-year investment opportunities. Match each investment scenario with its correct annual rate of return, which is calculated as the net gain divided by the initial cost.
For an asset purchased for $100 that is sold one year later for $105, the rate of return is considered positive only if the income generated by the asset (like dividends or rent) during that year is also positive.
You are an analyst tasked with advising a client on which of several potential one-year investments to choose, based solely on maximizing the percentage gain on their initial capital. Arrange the following steps into the correct logical sequence for making this recommendation.
An investor purchases an asset for $200. One year later, the asset is sold for $214. During the year, the asset generated $6 in income. The total rate of return for this one-year period is ____%.
Investment Recommendation for a Cautious Client
An investor analyzes their portfolio's performance over the past year. They find that their investment in Asset X, purchased for $1,000, was sold for $1,100, generating a $100 profit. Their investment in Asset Y, purchased for $100, was sold for $115, generating a $15 profit. The investor concludes that Asset X was the superior investment because it produced a larger absolute profit. Why is this conclusion potentially flawed as a method for comparing investment performance?
Learn After
Calculating Rate of Return on a Bank Deposit
An individual deposits $5,000 into a new savings account. The bank provides a written guarantee that the account will pay a 4% annual interest rate and that the initial deposit amount is fully protected from any loss. If the individual leaves the money in the account for exactly one year, what is their expected annual rate of return on this deposit?
Comparing Investment Returns
A key post-crisis banking reform that increases the amount of capital shareholders must contribute to a bank's funding is primarily designed to lower the interest rates the bank pays to its bondholders, thereby making the bank more profitable.
A bank offers a savings account with a guaranteed 5% annual interest rate. The guarantee ensures the depositor will receive their full initial deposit plus the 5% interest after one year. Why is the account's annual rate of return considered to be exactly 5% in this scenario?
Evaluating a Financial Product's Return
Conditions for Financial Return Equivalence
Investment Return Analysis
An individual deposits $1,000 into a savings account that advertises a 5% annual interest rate. The account also has a $1 per month maintenance fee. Assuming the deposit is held for exactly one year and the initial deposit is fully guaranteed, the annual rate of return for this investment will be exactly 5%.
Match each one-year investment scenario with the description that correctly characterizes its annual rate of return.
Certainty of Investment Returns
Certainty of Investment Returns
Analyzing Labor Market Policy Impact
An individual deposits $5,000 into a savings account for one year. The account offers a 4% annual interest rate and the initial deposit is fully guaranteed. However, the bank charges a one-time, upfront administrative fee of $50. What is the actual annual rate of return on this investment?
Divergence of Interest Rate and Rate of Return
A bank offers a savings account with a guaranteed 5% annual interest rate. The guarantee ensures the depositor will receive their full initial deposit plus the 5% interest after one year. Why is the account's annual rate of return considered to be exactly 5% in this scenario?
Match each one-year investment scenario with the description that correctly characterizes its annual rate of return.
Conditions for Financial Return Equivalence
Investment Return Analysis
Evaluating a Financial Product's Return
An individual deposits $1,000 into a savings account that advertises a 5% annual interest rate. The account also has a $1 per month maintenance fee. Assuming the deposit is held for exactly one year and the initial deposit is fully guaranteed, the annual rate of return for this investment will be exactly 5%.