Question

Use the compound interest formulas to solve. A = P(1 + r/n)nt and A = Pert Suppose you have $3000 to invest. Which investment yields the greater return over 10 years: Account 1: 6.5% compounded semiannually? Account 2: 6% compounded continuously? The account with the better investment is Account which yields dollars more after 10 years.

Answer 1

Account 1 yields greater return.

Explanation:

Lets solve for the first formula:

`A=P(1+(r)/(n) )^(nt)`

First, change 6.5% into a decimal:

6.5% ->
`(6.5)/(100)` -> 0.065

Now, plug in the values for Account 1:

`A=3,000(1+(0.065)/(2))^(2(10))`

`A=5,687.51`

Now solve for Account 2:

Change 6% into a decimal:

6% ->
`(6)/(100)` -> 0.06

Now plug in the values:

`A=3,000e^(0.06(10))`

`A=5,466.36`

Account 1 yields better money after 10 years.