Adam wants to invest $40,000 in a pension plan. One investment offers 7% compounded quarterly. Another offers 6.5% compounded continuously. Which investment will earn more interest in 10 years?

Answer 1

1. P = Po(1+r)^n

Po = $40,000.
r = 0.07/4 = 0.0175. = Quarterly % rate.
n = 4Comp./yr. * 10yrs. = 40 Compounding periods.
P = ?

2. P = Po * e^rt.

Po = $40,000.
r * t = 0.065 * 10 = 0.65.
P = ?