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Finance

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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

  • Finance -

    Pt = Po(1+r)^n.
    BANK A:
    r = (3 %/2) / 100 % = 0.015 = Semi-annual rate expresed as a decimal.

    n = 2 comp / yr + 1yr = 2 compounding
    periods.

    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.

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