Question

Tamra is having difficulty deciding whether to put her savings in the Albina Community Bank or in the Umpqua Bank. Albina offers a 12% rate compounded quarterly, and Umpqua offers 14% compounded semiannually. Tamra has $40,000 to invest and expects to withdraw the money at the end of five years. Using the tables found in your textbook, determine which one of the following is the best deal.

Answer 1

Quarterly woule be better due to the fact that 12 x 4 = 48% and semi anually would mean that 14% x 2 = 28% so therefore going with the 12% rate compound quarterly would be better that going with the 14% thefore
48% > 28%

Answer 2

Umpqua Bank will give better returns.

Explanation:

The compound interest formula is :

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

1. Albina bank:

p = 40000

r = 12% or 0.12

n = 4

t = 5

`A=40000(1+(0.12)/(4))^(20)`

=>
`A=40000(1.03)^(20)`

=>
`A=40000(1.80611)`

A = $72244.40

2. Umpqua bank:

p = 40000

r = 14% or 0.14

n = 2

t = 5

`A=40000(1+(0.14)/(2))^(10)`

=>
`A=40000(1.07)^(10)`

=>
`A=40000(1.96715)`

= $78686

Hence, we can see that Umpqua Bank will give better returns.