Question
Asked Dec 10, 2019
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suppose you have$13000 to invest. which of the two rates would yield the larger amount in one year: 11% compounded quarterly or 10.85% compounded continuously?

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Expert Answer

Step 1

Investment Amount (pv) = $13,000

Interest Rate (rate) = 11%

Type of Interest Compounded = Quarterly

Time Period = 1 Year

Number of Payments in a Year = 4

Total Number of Payments (nper) = 1 × 4 = 4

 

Calculation of future amount of the investment using FV function of excel is as follows:

To open the "FV function" window - MS-Excel --> Formulas --> Financials --> FV.

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=FV FV(rate, nper, pmt, [pv], [type]) |=FV(11%/4,4,-13000) $14,490.08

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Step 2

Investment Amount = $13,000

Interest Rate (r) = 10.85% or 0.1085

Type of Interest Compounded = Continuously

Time Per...

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Future Amount = Investment Amount x e (rxt) = $13,000 × e(0.1085-4) = $13,000 × e0.1085 = $13,000×1.11460491 = $14, 489.86

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