Posted by Vanessa on .
You receive $12,000 and looking for a bank to deposit the funds. Bank A offers an account with an annual interest rate of 3% compounded semiannually. Bank B offers an account with 2.75% annual interest rate compounded continuously. Calculate the value of the two accounts at the end of the year and recommend
Pt = Po(1+r)^n.
r = (3 %/2) / 100 % = 0.015 = Semi-annual rate expresed as a decimal.
n = 2 comp / yr + 1yr = 2 compounding
Pt = 12,000(1.015)^2 = $12362.70.
BANK B: Pt = Po*e^rt.
r = 2.75% / 100% = 0.0275 = Annual %
rate expressed a a decimal.
rt = 0.0275 /yr * 1 yr = 0.0275.
Pt = 12000*e^0.0275 = $12,334.58.