Question

You have the option to deposit $6500 into an account that pays 3.25% interest, compounded quarterly OR to deposit your money into an account that pays the same interest rate but compounds continuously. Which option yields you more money after 5 years and how much more?

OPTIONS:
Compounded quarterly, $4809.13
Compounded quarterly, $416.23
Compounded continuously, $5.02
Compounded continuously, $878.52

Answer 1

9514 1404 393

Answer:

Compounded continuously, $5,02

Explanation:

Compounded quarterly, the amount in the account will be ...

A = 6500(1 +.0325/4)^(4·5) ≈ 7641.89

Compounded continuously, the amount in the account will be ...

A = 6500e^(.0325·5) = 7646.91

So, the account compounding continuously has the higher yield, by the amount of ...

$7646.91 -7641.89 = $5.02