Question

suppose you have $11000 to invest. which of the two rates would yield the larger amount in 5 years: 6% compounded monthly or 5.86% compounded continuously?

Answer 1

Answer:

  6% monthly

Step-by-step explanation:

The monthly rate being compounded when the interest is 6% per year is ...

  6%/12 = 0.5%

so the multiplier each month is

  1 + 0.5% = 1.005

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The monthly multiplier when 5.86% is compounded continuously is ...

  e^(5.86%/12) ≈ 1.004895

The 6% rate will give a larger yield after any length of time.