Question

Gomez isn’t sure what to do. Should he put his $3000 into an account paying 6% for 10 years compounded annually or should he put into an account paying 10% for five years?

Answer 1

If these are the only two options, the most profitable is the first option (6% and 10 years).

Explanation:

Giving the following information:

Initial investment (PV)= $3,000

Number of periods (n)= 10 years or 5 years

Interest rate (i)= 6% or 10%

To calculate the future value (FV), we need to use the following formula:

FV= PV*(1 + i)^n

6% interest rate:

FV= 3,000*(1.06^10)

FV= $5,372.54

10% interest rate:

FV= 3,000*(1.1^5)

FV= $4,831.53

If these are the only two options, the most profitable is the first option (6% and 10 years).