Question

Account A: $300 monthly deposits, interest rate is 4.2%. Account B: $250 monthly deposits, interest rate is 5.1%. Which account will have a greater value at the end of 15 years?

a. Account A will be greater than Account B.





b. Account B will be greater because the interest rate is higher.





c. They will be worth about the same.





d. Not enough information.

Answer 1

A

Explanation:

We have to determine the future value of the annuity to determine which account has a greater value

Future value = Amount x annuity factor

annuity factor = Annuity factor = {[(1+r)^n] - 1} / r

Account A = 300 x[ (1.042)^15 - 1 ] / 0.042 = $6097.14

Account B = 250 x[ (1.051)^15 - 1 ] / 0.051 = $5435,42

Account A will be greater