Jie is investing $15000 and is choosing between two options.

Question

With Option A, the investment is compounded semi-annually and will grow to $20000 in 5 years.

With Option B, the investment is compounded monthly for 5 years.

The annual rate of interest is the same in both options. Which option should Jie choose?

Answer 1

option A:
semiannual rate --- i
15000(1+i)^10 = 20000
(1+i)^10 = 4/3
1+i = 1.029186
semi-annual rate is 2.9186 %
annual rate is 5.8372 %

option B, monthly rate is .004864..
15000(1 + .004864..)^60
= 20069.53

so option B

Since the annual rate is the same, clearly the more frequent compounding will give you a higher yield.
We knew that.

Answer 2

thank you so much! :)