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Suppose you hawe 25.000 to invest. Which investment yieids the creater return ower 7 years: 1.2% compounded monthly or 1.3% compounded continuously? Explain!

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Final answer:

The investment with 1.3% compounded continuously yields a greater return over 7 years compared to the investment with 1.2% compounded monthly.

Step-by-step explanation:

To determine which investment yields the greater return over 7 years, let's compare the two options: 1.2% compounded monthly and 1.3% compounded continuously.



For the 1.2% compounded monthly, we can use the formula for compound interest:



A = P(1 + r/n)^(nt)



Where A is the final amount, P is the principal amount, r is the interest rate per compounding period, n is the number of compounding periods per year, and t is the number of years.



Plugging the values into the formula:



A = 25000(1 + 0.012/12)^(12*7) = 28392.71



So, the 1.2% compounded monthly yields a final amount of $28,392.71



For the 1.3% compounded continuously, we can use the formula:



A = Pe^(rt)



Where e is Euler's number approximately equal to 2.71828.



Plugging the values into the formula:



A = 25000e^(0.013*7) = 28401.52



So, the 1.3% compounded continuously yields a final amount of $28,401.52



Therefore, the investment with 1.3% compounded continuously yields a greater return over 7 years.

User Shakeel Osmani
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