Asked by carol
Scenario: A client comes to you for investment advice on his $500,000 winnings from the lottery. He has been offered the following options by three different financial institutions and requests assistance to help understand which option would be the best for his investment.
Option 1: 6% compounded interest quarterly for 5 years.
Option 2: 8% compounded interest annually for 5 years.
Option 3: 14.5% simple interest for 10 years.
Option 1: 6% compounded interest quarterly for 5 years.
Option 2: 8% compounded interest annually for 5 years.
Option 3: 14.5% simple interest for 10 years.
Answers
Answered by
Thomas
Option 1 is worth
= $500,000*(1+0.06/4)^(5*4)
= $500,000*(1.015)^20
=$673,427.50
Option 2 is worth
= $500,000 * (1.08)^5
= $734,664.04
Option 3
= 500,000 * (1 + (.145*10))
= $1,225,000
Even for 5 years, you get
= 500,000 * (1 + (.145*5))
= $862,5000
The best option is Option 3
= $500,000*(1+0.06/4)^(5*4)
= $500,000*(1.015)^20
=$673,427.50
Option 2 is worth
= $500,000 * (1.08)^5
= $734,664.04
Option 3
= 500,000 * (1 + (.145*10))
= $1,225,000
Even for 5 years, you get
= 500,000 * (1 + (.145*5))
= $862,5000
The best option is Option 3
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