Solve the problem.A bank gives you two options to choose from for your investments: Option A: 6% annual interest rate compounded yearly; and Option B: 5.9% annual interest rate compounded quarterly. Which of the two options is the better investment at the end of the 2 years.

Question
Asked Apr 23, 2019
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Solve the problem.

A bank gives you two options to choose from for your investments:

 

Option A: 6% annual interest rate compounded yearly; and

 

Option B: 5.9% annual interest rate compounded quarterly.

 

Which of the two options is the better investment at the end of the 2 years.

 

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Expert Answer

Step 1

Formula of amount when compound interest is considered is

 

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Step 2

Lets check amount after two years for both option when $100 invested.

a) When compounded annually

Rate of interest = 6%

Principal = $100

Number of times interest calculated = Once in a year, so twice in 2 years that is n = 2

 

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Step 3

b)  When compounded quarterly

Rate of interest = 5.9% annually

                            = (5.9/4)% quarterly

       &...

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Calculus

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