+598 Mr. Lee is evaluating this option. He had decided to finance the purchase of this new inventory using a personal asset valued at $600,000 USD. The plan is to make a loan to his business. He prefers this alternative to bank financing and he is certain the product will generate a profit for his investment. His intention is to convert the asset to Canadian funds and invest it in two, successive 30-day GIC’s in order to accrue interest on this sum while waiting for the goods to arrive. The bank is offering a rate of 3.25% pa and the current exchange rate is 1CAD=0.900USD. He must decide whether to take the supplier’s offer or stick to his original plan and invest the full sum into GIC’s.
10. What is the total interest Mr. Lee will earn on his investment after 60 days?
If anyone could help me out, it would be greatly appreciated to see steps
Thanks
I'm surprised that you can't figure out something as simple as your question!.
Mr. Lee has a personal asset of $600,000USD and the exchange rate is .9US=$1CDN.
So, obviously, the first thing you have to do is to convert his personal asset into Canadian dollars: $600,000 X .90=$540,000 CDN.
Now, I assume that a "GIC" is some sort of short-term investments that Canadian Banks offer. So, if Mr. Lee invests ALL this money in a 30-day GIC, at the rate of 3.25%, then at maturity he should earn:
$540,000 X .0325 =$17,550 per year. But, he has the deposit for only 30 days, so $17,550/365=$48.08 per day. Then, $48.08 X 30=$1,442.40. This is what he earns for 30 days. Since Mr. Lee rolled over the deposit for another 30 days, he presumably rolled the interest that he earned for the first 30 days. If that is so, then he would have:$541,442.40 X .0325=$17,596.88 per year. $17,596.88/365=$48.21 per day X 30 days=$1,446.30, which is the total interest that he earned in 60 days.
