Answer to Question #252517 in Financial Math for sharan

Question #252517

Susan Bertrees can invest $12,000 at 2% interest compounded twice a year or compounded quarterly. If either investment is for 5 years, which investment results in more interest? How much more interest is yielded by the better investment?


1
Expert's answer
2021-10-18T14:36:02-0400

compounded twice a year:

FV1=12000(1+0.02/2)25=$13255.47FV_1=12000(1+0.02/2)^{2\cdot5}=\$13255.47


compounded quarterly:

FV2=12000(1+0.02/4)45=$13258.75FV_2=12000(1+0.02/4)^{4\cdot5}=\$13258.75


FV2FV1=13258.7513255.47=$3.28FV_2-FV_1=13258.75-13255.47=\$3.28


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