Chapter 9.1, Problem 64E

To determine

To explain which account is best investment.

Answer to Problem 64E

Account three is best investment.

Explanation of Solution

Given information:

  

Interest rate

  $r=\sqrt{\frac{v_2}{v_0}}-1$

  $v_0$ is initial investment

  $v_2$ is balance after 2 years

Calculation:

Interest rate for account 1

  $r=\sqrt{\frac{293}{275}}-1$

On solving

  $r\approx 1.03\%$

Interest rate for account 2

  $r=\sqrt{\frac{382}{361}}-1$

On solving

  $r\approx 1.02\%$

Interest rate for account 3

  $r=\sqrt{\frac{214}{199}}-1$

On solving

  $r\approx 1.078\%$

Interest rate for account 4

  $r=\sqrt{\frac{272}{254}}-1$

On solving

  $r\approx 1.071\%$

Interest rate for account 5

  $r=\sqrt{\frac{406}{386}}-1$

On solving

  $r\approx 1.051\%$

Account three is best investment.