Question

You have $2,000 in an account which pays 2.9% compounded annually. How many additional dollars of interest would you earn over 4 years if you moved the money to an account earning 4.4% compounded quarterly?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

You have $2,000 in an account which pays 2.9% compounded annually.

Second option:

An account earning 4.4% compounded quarterly.

Number of years= 4 years

To compare, we need to use the final value formula:

FV= PV*(1+i)^n

The option with greater final value is the most profitable.

Option 1:

PV= 2,000

i= 0.029

n= 4

FV= 2,000*(1.029)^4= $2,242.30

Option 2:

PV= 2,000

i= 0.044/4= 0.011

n= 4*4= 16

FV= 2,000*(1.011^16)= $2,328.59

Option 2 is the most profitable.