Question

You have saved 120,000€ and you want to know which is the better option for your money,

1. It is better to spend the money today or invested and receive 122,000 in 3 years with annual simple interest rate of 10%?

(25 points)

2. The bank offers you some options, however, you can't withdraw it for 5 years:
   1. 8% simple interest (15 points)
   2. 6% compounded semiannual (15 points)
   3. 5.5% compounded monthly (15 points)

    Which is the best option of the bank?

i only want the answer for question 3 please.

thank you

Answer 1

The answer is (a) 8% simple interest.

The bank would benefit if the interest it recieves is the highest of the # options. However a customer would benefit if the interest is paysis minimum.

in case (a) simple interest for 3 years= P*R*T= 0.08*120000*3= 28800

in case (b) compound interest will be= P( 1+ R/M)^n - P= 120000( 1+ 0.06/2)^6 - 120000=1432862.756-120000=232862.756

in case (c) compound interest will be= P( 1+ R/M)^n - P= 120000( 1+ 0.055/12)^36 120000= 141473.8323-120000= 21473.83229