Question

Diego is deciding between two investment options. Each requires him to invest $5,000 for 15 years.

Option 1: annual interest rate of 16% compounded monthly

Option 2: annual interest rate of 16% compounded quarterly

Which option should Diego choose to earn the most interest?

(1 point)
Diego should choose Option
because he will earn $
more in interest than with the other option.

Answer 1

Diego should choose Option 1 because monthly compounding yields a larger future value.

FV1 = 5000(1 + 0.16/12)^(12·15) ≈ 5000(1.0133333)^180 ≈ $54,249
FV2 = 5000(1 + 0.16/4)^(4·15) ≈ 5000(1.04)^60 ≈ $52,598

Difference ≈ $54,249 − $52,598 ≈ $1,651

So: Option 1, about $1,651 more.