Question

The details of two investment options are shown in the table.

Principal Annual Interest Rate Compounding Period Term
Option 1 $500 16.8% quarterly 15 months
Option 2 $700 19.9% biannually 18 months
Which investment option yields the greater average monthly interest over the course of the investment?

(1 point)
Responses

Option 1 yields the greater average monthly interest. On average, Option 1 earns $12.80 in interest per month.
Option 1 yields the greater average monthly interest. On average, Option 1 earns $12.80 in interest per month.

Option 2 yields the greater average monthly interest. On average, Option 2 earns $12.80 in interest per month.
Option 2 yields the greater average monthly interest. On average, Option 2 earns $12.80 in interest per month.

Option 1 yields the greater average monthly interest. On average, Option 1 earns $7.61 in interest per month.
Option 1 yields the greater average monthly interest. On average, Option 1 earns $7.61 in interest per month.

Option 2 yields the greater average monthly interest. On average, Option 2 earns $7.61 in interest per month.

Answer 1

Option 2.

Calculations:
- Option 1: A = 500(1 + 0.168/4)^(4*(15/12)) = 500(1.042)^5 ≈ 614.20, interest ≈ 114.20, monthly = 114.20/15 ≈ $7.61.
- Option 2: A = 700(1 + 0.199/2)^(2*(18/12)) = 700(1.0995)^3 ≈ 930.43, interest ≈ 230.43, monthly = 230.43/18 ≈ $12.80.

So Option 2 yields the greater average monthly interest: about $12.80 per month.