Question

Solve the problem 39) Which is the better choice: $1000 deposited for a year at a rate of 4.8% compounded semiannually or at a rate of 4.7% compounded quarterly? A) The rate of 4.8% compounded semiannually is better. B) They are the same. C) The rate of 4.7% compounded quarterly is better.

Answer 1

Answer:

Case I:

Compounded semiannually:

Amount = Principal (1+rate/200)^2

Amount = 10000(1+4.8/200)^2 = 10485.76

So if we deposited at 4.8% compound interest calculated semianually the amount after one year would be $10485.76

Compounded quartarlly:

Amount = Principal (1+rate/400)^4

Amount = 10000(1+4.7/400)^4 = 10478.35

So if we deposited at 4.7% compound interest calculated quartely the amount after one year would be $10478.35

So amount of semiannully compounded at interest 4.8% is higher than of quarterly compounded at interest 4.7%

So correct option is A:

The rate of 4.8 % compounded semiannually is better.