Question

Kelsey has $5000 to invest and she is trying to decide between two banks. The second national bank is paying 3.5% interest compounded continuously. The third national bank is paying 3.8% interest compounded monthly. Find the amounts possible after 7 years at each bank. Which bank should Kelsey choose and why?

Answer 1

Monthly Compounding

Total = principal * (1 + rate / 12) ^ years * 12

Total = 5,000 * (1 + (.038/12) )^84

Total = 5,000 * 1.30418682

Total = 6,520.93

Continuous Compounding

Total = principal * e ^ (rate * years)

Total = 5,000 * 2.718281828459 ^ (.035 * 7)

Total = 5,000 * 2.718281828459 ^ (0.245 )

Total = 5,000 * 1.2776213132

Total = 6,388.11

So, Kelsey should choose the monthly compounding bank.

Explanation:

Answer 2

Answer: 851.44

Step-by-step explanation: try to do the math