Answer:
The answer is option (C). Four Rivers Bank
Explanation:
a). The total amount Jane will receive after 5 years after investing $40,000 in the Mystic Bank can be expressed as follows;
A = P (1 + r/n) (nt)
where;
A = the future value of the initial investment
P = initial investment amount/principal amount
r = the annual interest rate
n = the number of times that interest is compounded per unit t
t = the time the money is invested for
In our case;
P=$40,000
r=12/100=0.12
n=interest is compounded quarterly which is four times a year=4
t=5 years
Replacing values in the formula;
A=40,000(1+0.12/4)^(4×5)
A=40,000(1+0.03)^20
A=40,000×1.806
A=72,244.45
The total amount Jane will receive after 5 years if she chooses to invest with the Mystic Bank is $72,244.45
b). The total amount Jane will receive after 5 years after investing $40,000 in the Four Rivers Bank can be expressed as follows;
A = P (1 + r/n) (nt)
where;
P=$40,000
r=14/100=0.14
n=interest is compounded semiannually which is two times a year=2
t=5 years
Replacing values in the formula;
A=40,000(1+0.14/2)^(2×5)
A=40,000(1+0.07)^10
A=40,000×1.967
A=78,686.05
The total amount Jane will receive after 5 years if she chooses to invest with the Four Rivers Bank is $78,686.05
c). The best deal would be to invest with Four Rivers Bank for 5 years since the total amount Jane will receive after 5 years will be $78,686.05 which is greater than $72,244.45, which is the total amount she will receive if she chooses to invest with Mystic Bank
