Find the best solutions to your questions at Westonci.ca, the premier Q&A platform with a community of knowledgeable experts. Get detailed answers to your questions from a community of experts dedicated to providing accurate information. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.
Sagot :
Problem
You have $20,000 that you want to deposit into a savings account.
You have four options to choose from, Bank A offers 4.25% compounded monthly, (Ex 2) Bank B offers 6% compounded Semi Annually, (Ex 2) Bank C offers a simple interest account with a 5.5% rate, (Chapter 8.3) Bank D offers a rate of 4% compounded continuously. (Ex 3) How much money will you have in each account if you let the money sit for 5 years? Which is the best choice?
Solution
For this case we need to take in count the compound interest formula given by:
[tex]A=P(1+\frac{r}{n})^{nt}[/tex]Where P= 20000, r= interest rate in fraction and n= number of times that the rate is compounded in a year, t= 5 years and A is the future value
And the simple interest formula:
[tex]A=P(1+rt)[/tex]And compound continuosly:
[tex]A=\text{Pe\textasciicircum{}rt}[/tex]Let's calculate the final amount for each case
Bank A
[tex]A=20000(1+\frac{0.0425}{12})^{12\cdot5}=24726.038[/tex]Bank B
[tex]A=20000(1+\frac{0.06}{2})^{2\cdot5}=26878.328[/tex]Bank C
[tex]A=20000(1+0.055\cdot5)=25500[/tex]Bank D
[tex]A=20000e^{0.04\cdot5}=24428.055[/tex]And the best choice for this case seems to be Bank B since we will have more money at the end of the 5 year
We appreciate your time on our site. Don't hesitate to return whenever you have more questions or need further clarification. We appreciate your time. Please come back anytime for the latest information and answers to your questions. Keep exploring Westonci.ca for more insightful answers to your questions. We're here to help.
