Question

Cindy invests $3000 in a bond trust that pays 8% interest compounded semiannually. Her friend, Jimmy, invests $3000 in a certificate of deposit that pays 7.75% compounded monthly. Who has more money after 20 years, Cindy or Jimmy?

Answer 1

Cindy has more amount than Jimmy.

Step-by-step explanation:

Amount invested by Cindy P = $3000

Annual rate of interest = 8%

As the amount is compounded semiannually

So rate of interest
`=(8)/(2)=4%` %

Time = 20 year

So time period n = 20×2 = 40

So amount own by Cindy
`A=P(1+(r)/(100))^n`

`A=3000(1+(4)/(100))^(40)=14403.06` $

Amount deposit by jimmy P = $3000

Annual rate of interest = 7.75 %

As the amount is compounded monthly

So rate of interest
`r=(7.75)/(12)=0.322` %

Time period = 20×12 = 240

So amount own by Jimmy
`A=P(1+(r)/(100))^n`

`A=3000(1+(0.322)/(100))^(240)=6503.650` $

From the calculation we can see that Cindy has more amount than Jimmy.