Question

Jon Deposits $14,500 into an account paying 5% annual interest compounded quarterly and Sara deposits $16,250 into an account paying 4% annual interest compounded daily who will have more money after 1 year? How much more will that person have? Show and explain all work.

Answer 1

Results are below.

Explanation:

Giving the following information:

Jon:

Initial investment (PV)= $14,500

Interest rate (i)= 0.05/4= 0.0125

Number of periods (n)= 4 quarters

Sara:

Initial investment (PV)= $16,250

Interest rate (i)= 0.04/365= 0.00011

Number of periods (n)= 365 days

To calculate the Future Value, we need to use the following formula:

FV= PV*(1+ i)^n

Jon:

FV= 14,500*(1.0125^4)

FV= $15,238.71

Sara:

FV= 16,250*(1.00011^365)

FV= $16,915.67

Sara will have $1,676.96 more than Jon.