Use the formula A $$A = P \left( 1 + \frac { r } { n } \right) ^ { n t } \text { or } A = P e ^ { r t } \text { to solve. }$$
-Suppose that you have $3000 to invest. Which investment yields the greater return over 7 years: 5.4% compounded monthly or 5.5% compounded quarterly?
A) Both investment plans yield the same return.
B) $3000 invested at 5.5% compounded quarterly over 7 years yields the greater return.
C) $3000 invested at 5.4% compounded monthly over 7 years yields the greater return.

Question

Quizplus · Accepted Answer

To compare the two investments, we use the formula $A = P \left(1 + \frac{r}{n}\right)^{nt}$ for each. For the first investment at 5.4% compounded monthly (n=12), and the second at 5.5% compounded quarterly (n=4), both over 7 years (t=7), we calculate:1. For 5.4% compounded monthly: $A = 3000 \left(1 + \frac{0.054}{12}\right)^{12*7}$2. For 5.5% compounded quarterly: $A = 3000 \left(1 + \frac{0.055}{4}\right)^{4*7}$Calculating both, the investment at 5.5% compounded quarterly yields a greater return than the investment at 5.4% compounded monthly, due to the slightly higher interest rate and the effect of compounding.

Use the Formula A A=P(1+rn)nt or A=Pert to solve. A = P \left( 1 + \frac { r } { n } \right) ^ { n t } \text { or } A = P e ^ { r t } \text { to solve. }A=P(1+nr​)nt or A=Pert to solve.

Use the Formula A $A = P \left( 1 + \frac { r } { n } \right) ^ { n t } \text { or } A = P e ^ { r t } \text { to solve. }$