Question

Suppose that you have $10,000 to invest over a 3 year period. There are two accounts to choose from: 4% compounded monthly or 3.5% compounded continuously.

a. Write the formula for the first account’s compound interest for n compoundings per year.

b. Write the formula for the account with continuously compounded interest.

c. Use the formulas and information above to solve for the balance of each investment after 3 years.

d. Which investment account offers a better return on your money?

Answer 1

a. FV=10000*(1+(.04/n)^ny where FV is the final value,n is compoundings per year, and y is number of years
b. FV=1000*e^.035y where y is years
c. FV=1000*(1+(.04/12))^36=$1127.27 or
FV=1000*e^.105=$1110.71
d. The first account offers a little more money overall
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