Question

Which investment has a greater future value? Investment A that has a $250 investment, per month, for 10 years at 7% annual interest or Investment B that has a $3,000 investment, per year, for 10 years at 6% annual interest? (1 point)

The future values cannot be compared because the rates of return are different

Both investments have the same future value because their payments total $3,000 per year for 10 years

Investment A has a greater future value than Investment B

Investment B has a greater future value than Investment A

Answer 1

Investment A has a greater future value than Investment B.

Calculation (ordinary annuities, compounding at payment frequency):

- Investment A: 250 per month, 7% annual = 0.07/12 per month, n = 120
FV_A = 250 * [((1+0.07/12)^120 − 1) / (0.07/12)] ≈ 250 * 173.083 ≈ $43,271

- Investment B: 3,000 per year, 6% annual, n = 10
FV_B = 3,000 * [((1.06)^10 − 1) / 0.06] ≈ 3,000 * 13.1808 ≈ $39,542

So Investment A ≈ $43,271 > Investment B ≈ $39,542.