Question

Tamra is having difficulty deciding whether to put her savings in the Albina Community Bank or in the Umpqua Bank. Albina offers a 12% rate compounded quarterly, and Umpqua offers 14% compounded semiannually. Tamra has $40,000 to invest and expects to withdraw the money at the end of five years. Using the tables found in your textbook, determine which one of the following is the best deal.

a. albina for last two years

b. umpqua for first two years

c. umpqua

d. albina
my answer is C.

Answer 1

so, did you consult your tables? The final balances will be
albina: (1 + .12/4)^(4*5)
umpqua: (1 + .14/2)^(2*5)

for the last two years, at rate r, compounded n times/year, the growth is
40000((1+r/n)^(5n) - (1 + r/n)^(3n))
That is, subtract the balance at the end of 3 years from the final balance after 5 years. Just plug in the rates etc. as needed.

Answer 2

[1 + (.12 / 4)]^20 = 1.806

[1 + (.14 / 2)]^10 = 1.967