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Luisa wants to invest $20,000. Which 5-year investment is the best deal: compounded daily at 3.5% or compounded monthly at 3.75%?

1) Compounded daily at 3.5%
2) Compounded monthly at 3.75%

User Rzrelyea
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1 Answer

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Final answer:

The monthly compounding option at 3.75% is the better deal.

Step-by-step explanation:

To determine which 5-year investment is the best deal, we need to compare the compound interest earned on both options. For the daily compounding at 3.5%, the formula is A = P(1 + r/n)^(nt). Plugging in the values, we get A = 20000(1 + 0.035/365)^(365*5) = $24,397.36. For the monthly compounding at 3.75%, the formula is A = P(1 + r/n)^(nt). Plugging in the values, we get A = 20000(1 + 0.0375/12)^(12*5) = $24,579.26. Therefore, the monthly compounding option at 3.75% gives a higher return, making it the better deal.

User Nathan Kuchta
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