Step-by-step explanation:
It is not specified the compounding period, which in general is a month these days. So we will assume money is compounded each month, otherwise there is no point depositing monthly.
1. Yolanda:
APR=5% is equivalent to
Monthly interest = 5%/12 = 5/12% = 5/1200 = 1/240 = i
Monthly deposit = 100 = A
Future value after 14 years = 14*12 months = 168 months = n
FV1 = A((1+i)^n-1)/i
=100*((1+1/240)^168-1)/(1/240)
= $24259.83
2. Zach
He deposits 1200 at the end of the year. The last payment does not benefit from interest.
Since it is a yearly payment, each amount earns interest over a year, giving an annual interest of
(1+i)^12 -1 = 1.051161897881733 -1 =0.051161897881733 = j
Thus for 13 annual payments with annual interest j gives a compounded amount after 14 years, plus the last payment which does not earn interest
FV2 = A((1+j)^n-1)/j
= 1200((1.051161897881733)^13-1)/(0.051161897881733)+1200
= 22613.34
Summary
Total investments:
Yolanda = 12*100*14 = 16800
Zach = 1200 * 14 = 16800
So both investors have invested $16800 over the 14 year period.
Since Yolanda achieves a higher future value after 14 years ($24259.83) over that of Zach ($22613.34), financially Yolanda has a better strategy.
Note:
If zach had invested annually at the beginning of the year, he would have obtained:
A((1+j)^n-1)/j
= 1200((1.051161897881733)^14-1)/(0.051161897881733)
= 24908.88
which is superior over Yolanda's return.
