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March 26, 2017

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Jim wants to deposit money in an account to save for a new stereo system in two years. He wants to have $4,000 available at the time. The following rates are available to him:
6.2% simple interest
6.1% compounded annually
5.58% compounded semiannually
5.75% compounded quarterly

Which account(s) should he choose if he wants to invest the smallest amount of money now?

  • math - ,

    consider the amount of $1 at the end of 2 years

    at 6.2% simple ---- 1 + (1)(.062)(2) = $1.124
    at 6.1 comp. annually ---- (1.061)^2 = $1.1257
    at 5.58% com. semi --- (1.0279)^4 = $1.11636
    at 5.75% comp. quarterly -- (1.014375)^8 = 1.12096

    so what do you think?

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