Question

"You have three choices in placing your $15,000 in a bank account today for 9 years.
Bank A pays 5.85% compounded annually.
Bank B pays 5.2% compounded quatarly.
Bank C pays 5.56% compounded continuously.
Enter the amount of money that the best option would return after 9 years. There is no inflation."

Answer 1

Find the best option to invest $15,000 for 9 years by comparing the amount received after 9 years using the future value formula FV = P(1 + r%)^n

• Bank A pays 5.85% compounded annually. FV = 15000(1 + 5.85%)^9 = $25,021.25
• Bank B pays 5.2% compounded quatarly so that annual interest rate = (1 + 5.2%/4)^4 - 1 = 5.3023%. FV = 15000(1 + 5.3023%)^9 = $23,879.87
• Bank C pays 5.56% compounded continuously so effective rate is exp(5.56%) - 1 = 5.7175%. FV = 15000(1 + 5.7175%)^9 = $24,740.77

Best option is offered by Bank A and we will have  $25,021.25 in account after 9 years.