Question

Sami has $500 to invest. Suppose he has the following investment options: 3% compounded annually for 4 years, 4% compounded annually for 3 years, 2.5% compounded every 2 years for 6 years, and 5% compounded annually for 2 years. Which investment will give him the most money at the end of its investment period? (Remember, the formula is A = P(1 + r)t.)

Answer 1

i think the answer is 5% compounded annually for 2 years.

hope it helps

Answer 2

Sami should invest in 1st case, to get the maximum money.

Explanation:

Sami has $500 to invest.

We will use the compound interest formula :

`A=p(1+r/n)^(nt)`

Case 1:

p = 500

r = 3% or 0.03

t = 4

n = 1

Putting the values in formula we get,

`A=500(1+0.03/1)^(4)`

`A=500(1.03)^(4)`

A = $562.75

Case 2:

p = 500

r = 4% or 0.04

n = 1

t = 3

Putting the values in formula we get,

`A=500(1+0.04/1)^(3)`

`A=500(1.04)^(3)`

A = $562.43

Case 3:

p = 500

r = 2.5% or 0.025

n = 3

t = 6

Putting the values in formula we get,

`A=500(1+0.025/3)^(6)`

`A=500(1.0083)^(6)`

A = $525.42

Case 4:

p = 500

r = 5% or 0.05

n = 1

t = 2

Putting the values in formula we get,

`A=500(1+0.05/1)^(2)`

`A=500(1.05)^(2)`

A = $551.25

Comparing all values we can see that case 1 has the highest amount.

Hence, Sami should invest in 1st case, to get the maximum money.