Question

Sam is willing to invest $30,000.00 for four years, and is an economically rational investor. He has identified three investment alternatives (A, B, and C) that vary in their method of calculating interest and in the annual interest rate offered. Since he can only make one investment during the four-year investment period, complete the following table and indicate whether Sam should invest in each of the investments.

Note: When calculating each investment’s future value, assume that all interest is compounded annually. The final value should be rounded to the nearest whole dollar.

Investment	Interest rate and Method	Expected future value	Make this investment?
A	8% simple interest
B	3% compound interest
C	5% compound interest

Answer 1

Investment	Interest rate and Method	Expected future value
A	8% simple interest	39600
B	3% compound interest	$33,765.26
C	5% compound interest	$36,465.19

If only 1 is to be taken, select A since its gives highest return.

Workings

AutoSave @ on HD: Book1 - Excel File Home Insert Draw Page Layout Formulas Data Review View Help Calibri 11 AA = = = $nnale General Paste e BIU - 2 0 -A - $ -% 978-98 0.00 Clipboard F. Font Alignment Number D5 - ✓ fe Tell me what you want to do E A PA Conditional Format as Cell Formatting Table Styles Styles Sign in - 0 x Share Comments insert E 47 0 5% Delete - Find & Filter Select Cells Editing Format - Sort & Find & A B Investment Interest rate and Method Expected future value 8% simple interest =30000+30000*8%*4 3% compound interest =FV(3%,4,-30000) 5% compound interest =FV(5%,4,,-30000)