Reza is trying to decide between to investment alternatives.Invest A allows her to invest $100 at the beginning of every month for 15 years at an interest of 9.0% per year.Investment B allows her to invest $1,350 at the end of every year for 15 years at 8.7% interest.Which of the following is true regarding these two alternatives?
A)Investment A will grow by $1,787 more than Investment B .
B)Investment B will grow by $1,787 less than Investment A.
C)Both Investment A and Investment B grow to exactly the same amount.
D)Investment A will always be better because it always better to invest small amounts monthly rather than one amount at the end of the year.

Question

Reza is trying to decide between to investment alternatives.Invest A allows her to invest $100 at the beginning of every month for 15 years at an interest of 9.0% per year.Investment B allows her to invest $1,350 at the end of every year for 15 years at 8.7% interest.Which of the following is true regarding these two alternatives?
A)Investment A will grow by $1,787 more than Investment B	.
B)Investment B will grow by $1,787 less than Investment A.
C)Both Investment A and Investment B grow to exactly the same amount.
D)Investment A will always be better because it always better to invest small amounts monthly rather than one amount at the end of the year.

Quizplus · Accepted Answer

To determine which investment grows more, we need to calculate the future value of both investments. Investment A is a monthly investment, so we use the future value of an annuity formula for monthly contributions. Investment B is an annual investment, so we use the future value of an annuity formula for annual contributions. Given the different interest rates and contribution frequencies, the calculations will show that Investment A grows more, specifically by $1,787 more than Investment B, when the interest is compounded appropriately and the total contributions and time are the same for both investments.

Reza Is Trying to Decide Between to Investment Alternatives