Tom and Lana both need $15,000 in 3 years. Tom finds an investment in which he can earn 8% compounded annually. Lana finds an investment in which she earns 7 7/8% interest compounded monthly. Who must invest more money now in order to get $15,000 in 3 years? How much more?

___(Tom/Lana)___ has to invest $________ more than the other one in order to have the same amount ($15,000) in 3 years.

1 answer

Tom:
Paym(1.08)^3 = 15000
Paym = 15000/1.08^3 = $11,907.48

Lana: monthly rate = .07875/12 = .0065625
Paym(1.0065625)^36 = 15000
Paym = 15000/1.0065625^36 = $11,852.89

etc