Question

Melvin indecision has difficulty deciding whether to put his savings in Mystic bank or Four Rivers bank. Mystics offers 18% interest compounded semiannually. Four Rivers offers 16% interest compounded quarterly. Melvin has $11,400 to invest. He expects to withdraw the money at the end of four years. Calculate interest for each bank and identify which bank gives Melvin the best deal.

Answer 1

Option-Mystics
Annual rate = 18%
Semi annual interest rate = 18/2 = 9%
Amount deposited				11400
Multiply: FVF at 9% for 8 periods				1.992563
Amount at the end of 4th year				22715.22
Less: Amount deposited				11400
Interest earned				11315.22
Option-Four rivers:
Annual rate= 16%
Quarterly Interest rate =16 /4 = 4%
Amount deposited				11400
Multiply: FVF at 4% for 16 periods				1.872981
Amount at the end of 4th year				21351.98
Less: Amount deposited				11400
Interest earned				9951.983
The amount must be kept in Mystic bank.