Question

Consider the two savings plans below. Compare the balances in each plan after 6 years Which person deposited more money in the plan? Which of the two investment strategies is better? Yolanda deposits $550 per month in an account with an APR of 3%, while Zach deposits $7000 at the end of each year in an account with an APR of 3.5% The balance in Yolanda's saving plan after 6 years was $ (Round the final answer to the nearest cent as needed Round all intermediate values to seven decimal places as needed.)

Answer 1

Requirement 1:-

Yolanda:-

Monthly Payment of Yolanda = $550

Annual Percentage rate = 3%

Monthly percentage rate = 3%/12 months = 0.25%

No.of payments = 6 years * 12 months = 72

Balance in account at the end of 6 years = $550 * FVIFA(72 periods, 0.25%)

=$550 * 78.7794

Future Value =$43,328.67

Deposits made in plan = $550 * 72 months = $39,600

Zach:-

Yearly payment = $7,000

APR = 3.5%

Future Value = $7,000 * FVIFA(6 years, 3.5%)

Future Value = $7,000 * 6.5502

Future Value = $45,851.4

Deposits made in plan = $7,000 * 6 years = $42,000

Zach has made more deposit in the plan.

The investment strategy adopted by Yolanda is better as the interest compounds monthly.

Yolanda's balance in savings plan after 6 years = $43,329(Rounded)

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