Answer:
Zach´s strategy is better
Explanation:
To find the final capital, we use the compound interest formula:
Final Capital (FC)= Initial Capital (IC)*[(1+interest(i))]^(number of periods(n))
Yolanda:
She knows the APR (annual percentage rate) but she deposits each month, so we need to convert this rate in a montly rate. To do so, we use this formula:
Monthly rate= ((1+annual rate)^(1/# perdiods))-1
Montly rate= (1+6%)^(1/12)= 1,00486-1= 0,00486= 0,48%
Then, we apply the compound interest formula (84 periods because theare 84 months in 7 years):
FC= $300*(1+0,48%)^(84)= $451,09
Zach
We only need to apply the compound interest formula because he deposits each year and the rate is annual ( in this case the number of periods is ni year).
FC= $3600*(1+6%)^(7)=$4510,81
