Question

Which earns more money (show all work) Note P = $3000 A) An account earning 10% annual interest, compounded yearly; B) An account earning 9.75% annual interest, compounded monthly; C) An account earning 9.5% annual interest, compounded daily. Use A = P (1+r/m)

Answer 1

Let time period be 1 year

1.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$3000*(1+10/100)^1

=$3300

2.We use the formula:
A=P(1+r/1200)^12n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$3000(1+9.75/1200)^(12*1)

=$3000*1.10197722

=$3305.93

3.We use the formula:
A=P(1+r/365)^365n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$3000(1+0.095/365)^(365*1)

=$3000*1.099645262

=$3298.94(Approx).

Hence the correct option is B.