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Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money...

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Accounting

Sandy McPherson, a university study, has inherited $90,000. She is looking to save this money and earn interest for exactly four years, after which she will use it as a deposit on her new house. She has researched the interest market and come up two good introductory options to choose from:

  1. Sum bank- 2.7% interest for the first year, then 1.15 % for the next three years.
  2. Certain bank- 2.1% for the first two years and then 0.4% for the next two years.

Assume that interest is paid monthly and that the returns occur after tax. Task:

  1. Calculate the amount of interest Sandy will have earned under each scenario.
  2. Taking into consideration the amount of interest earned over the 4 years, calculate the annual rate of return for each product as a percentage.
  3. Explain why your answers in question b better represents an APR or an EAR.

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