Certificate of Deposit

Archive for January, 2007

Question: I have a Certificate Of Deposit?

It is for more than 100K at one bank, Wachovia. I am worried they may fail like Indymac. Is there a way to get out of the CD or restructure it so that I am protected?

Answer: The FDIC insured deposits (regardless of type) up to $100K ($250k for IRA) in any bank. Money over that limit should be moved to another bank (not a branch or the same bank). However, if you withdraw from the CD before the term is up, the bank will charge a penalty.

So you are faced with a choice: Withdraw not with a certain loss or wait until the term ends and risk a possibly greater loss.

Your decision.

Question: Is the PayPal Money Market available for Canada?

I have a Canadian account and when I try to enroll it just takes me back to my account page with no changes.

Answer: no!!!

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Question: Effective annual yield finance homework problem?

Is this how you would solve this problem:
“You invest in a CD (Certificate Of Deposit) that pays 5.75% compounded quarterly for 6 years. What is the effective annual yield of the CD? What is the overall return after 6 years?”

(1 + 5.75/12)^12
If the above formula is correct (please correct me if I’m wrong), how would I enter that in a TI-30XIIS calculator? I’m not sure how to utilize the ^ key…

Answer: What do you mean by the overall return after 6 years?

Let i = effective annual yield. Then

(1+.0575/4)^(4*6)=(1+i)^6
(1+.0575/4)^24 = (1+i)^6
(1+.0575/4)^4 = 1+i
i = (1+.0575/4)^4 – 1 = .0588, or 5.88%

You’d enter the last calculation in your calculator exactly as I typed it. ^ is for exponents.