Asked by Leah
Jie is investing $15000 and is choosing between two options.
With Option A, the investment is compounded semi-annually and will grow to $20000 in 5 years.
With Option B, the investment is compounded monthly for 5 years.
The annual rate of interest is the same in both options. Which option should Jie choose?
With Option A, the investment is compounded semi-annually and will grow to $20000 in 5 years.
With Option B, the investment is compounded monthly for 5 years.
The annual rate of interest is the same in both options. Which option should Jie choose?
Answers
Answered by
Reiny
option A:
semiannual rate --- i
15000(1+i)^10 = 20000
(1+i)^10 = 4/3
1+i = 1.029186
semi-annual rate is 2.9186 %
annual rate is 5.8372 %
option B, monthly rate is .004864..
15000(1 + .004864..)^60
= 20069.53
so option B
Since the annual rate is the same, clearly the more frequent compounding will give you a higher yield.
We knew that.
semiannual rate --- i
15000(1+i)^10 = 20000
(1+i)^10 = 4/3
1+i = 1.029186
semi-annual rate is 2.9186 %
annual rate is 5.8372 %
option B, monthly rate is .004864..
15000(1 + .004864..)^60
= 20069.53
so option B
Since the annual rate is the same, clearly the more frequent compounding will give you a higher yield.
We knew that.
Answered by
Leah
thank you so much! :)
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