OneofyourprivateclientshasaskedforyouradviceconcerningGhc100Mwhichhe wishestoinvestforfiveyears.ThetwoalternativesaretouseaBankAccountwhere the36%perannumrateiscompoundedmonthlyoraSavingFundwherethe40%per annumrateiscompoundedannually. a.Calculatethesizeofeachfundattheendofthefiveyears. b.DemonstrateintabularformthegrowthoftheSavingFundinvestment c.CalculatetheeffectiveannualinterestrateoftheBankAccountinvestment. d.Withoutusingthefinalvalueofbothinvestmentsasacriterion,adviseyourclient astowhichchoicetoinvestin

a. To calculate the size of each fund at the end of five years, we use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (in decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years.

For the Bank Account: P = Ghc100M, r = 36% or 0.36 (in decimal), n = 12 (compounded monthly), t = 5 years A = Ghc100M(1 + 0.36/12)^(12*5) = Ghc 100M * (1.03)^60 = Ghc 285.18M

For the Saving Fund: P = Ghc100M, r = 40% or 0.40 (in decimal), n = 1 (compounded annually), t = 5 years A = Ghc100M(1 + 0.40/1)^(1*5) = Ghc 100M * (1.4)^5 = Ghc 537.82M

b. To demonstrate the growth of the Saving Fund investment in tabular form, we calculate the fund size at the end of each year for five years:

Year 1: Ghc100M * 1.4 = Ghc140M Year 2: Ghc140M * 1.4 = Ghc196M Year 3: Ghc196M * 1.4 = Ghc274.4M Year 4: Ghc274.4M * 1.4 = Ghc384.16M Year 5: Ghc384.16M * 1.4 = Ghc537.82M

c. To calculate the effective annual interest rate of the Bank Account investment, we use the formula: EAR = (1 + i/n)^(nt) - 1, where i is the nominal interest rate, n is the number of compounding periods per year, and t is the number of years.

EAR = (1 + 0.36/12)^(12*1) - 1 = 0.4296 or 42.96%

d. Without using the final value of both investments as a criterion, the choice between the two investment options depends on the client's risk tolerance, liquidity needs, and investment goals. The Saving Fund offers a higher interest rate but is compounded less frequently, which could be beneficial if the client does not need frequent access to the funds. The Bank Account, on the other hand, compounds monthly, which could be advantageous if the client needs more frequent access to the funds. However, the Bank Account has a lower interest rate. The client should consider these factors in making their decision.