Question

You have $10,000 to invest and want to keep your money invested for 10 years. You are considering the following investment options. Choose the investment option that will earn you the most money.
a.
2.89% compounded monthly
b.
2.975% compounded quarterly
c.
2.99% compounded annually
d.
3.25% simple interest

Answer 1

Compute each option's 10-year value on $10,000 and compare.

a) 2.89% compounded monthly:
Amount = 10000*(1 + 0.0289/12)^(12*10)
≈ 10000*(1.0024083333)^(120) ≈ $13,346.32

b) 2.975% compounded quarterly:
Amount = 10000*(1 + 0.02975/4)^(4*10)
≈ 10000*(1.0074375)^(40) ≈ $13,448.69

c) 2.99% compounded annually:
Amount = 10000*(1 + 0.0299)^(10)
≈ 10000*(1.0299)^(10) ≈ $13,425.96

d) 3.25% simple interest:
Amount = 10000*(1 + 0.0325*10) = 10000*(1 + 0.325) = $13,250.00

The largest amount comes from (b) 2.975% compounded quarterly (≈ $13,448.69).