Question

Scott Harris can invest $7,000 in a 1-year CD that earns interest at an annual rate of 4 percent compounded monthly. The amount per $1.00 is 1.040742. He can also invest $7,000 in a 1-year CD at annual rate of 4 percent compounded quarterly. The amount per $1.00 is 1.040604. What is the difference in the amount of interest earned for each investment?

A) $0.96
B) $0.81
C) $0.87
D) $0.88

Answer 1

option A is answer.

Explanation:

Amount of interest earned for compounded monthly for $1 = 1.040742

Amount of interest earned for compounded quarterly for $1= 1.040604

Difference for $1 = 1.040742 - 1.40604

=0.000138

Difference for $7000 = $7000x0.000138

= 0.966

or $0.96