Question

You have $12,000 to invest and want to keep your money invested for 8 years. You are considering the following investment options. Choose the investment option that will earn you the most money.
a.
3.99% compounded monthly
b.
4% compounded quarterly
c.
4.175% compounded annually
d.
4.2% simple interest

Answer 1

Compute the future value A for each option with P = \$12,000 and t = 8 years.

a) 3.99% compounded monthly:
A = 12000*(1 + 0.0399/12)^{96} ≈ 12000*(1.003325)^{96} ≈ \$16,504 (about)

b) 4.00% compounded quarterly:
A = 12000*(1 + 0.04/4)^{32} = 12000*(1.01)^{32} ≈ \$16,499 (about)

c) 4.175% compounded annually:
A = 12000*(1 + 0.04175)^{8} = 12000*(1.04175)^{8} ≈ \$16,646 (about)

d) 4.2% simple interest:
A = 12000*(1 + 0.042*8) = 12000*(1.336) = \$16,032

The largest amount comes from (c) 4.175% compounded annually.