Question

A person wants to invest $12,000 for 2 years and is considering two different investments. The first investment, a money market fund, pays a guaranteed 5.1% interest compounded daily. The second investment, a treasury note, pays 5.3% annual interest. Which investment pays the most interest over the 2-year period? Choose the correct answer below. O A. The market fund is the better investment, since the market fund produces $ in interest, and the treasury note pays $ in interest. OB. The treasury note is the better investment, since the market fund produces s in interest, and the treasury note pays $ in interest. O c. Both the market fund and the treasury note produce the same interest with $ 1. (Round to the nearest cent as needed.)

Answer 1

5.1% interest compounded daily is equivalent to (1 + 0.051/365)^365 - 1 = 0.0523191442 = 5.23191442% annually.

Money market fund interest rate = 5.23191442%

The money market fund produces 12,000 * (1 + 0.0523191442)^2 - 12000 = $1,288.51 in interest

Treasury note interest = 5.3%

Treasury note produces 12000 * (1 + 0.053)^2 - 12000 = $1,305.708 in interest

Option B is correct.

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