Homework Help: Finance

Posted by Vanessa on Saturday, December 17, 2011 at 5:08am.

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 - Henry, Monday, December 19, 2011 at 4:57pm
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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