Question

If Free Yer Assets Bank (FYAB) will give you 0.25% compounded quarterly and I.M.A.Q.T.π bank will give you 0.23% interest compounded continuously, which is offering the better deal (Hint: Show how long it takes to double an investment).

Answer 1

Answer:

FYAB gives a better deal.

Step-by-step explanation:

Compound interest:

$A = P(1 + \dfrac{r}{n})^{nt}$

Continuously compounded interest:

$A = Pe^{rt}$

For the quarterly compounded interest, r = 0.25%, and n = 4.

$2P = P(1 + \dfrac{0.0025}{4})^{4t}$

$1.000625^{4t} = 2$

$\log (1.000625^{4t}) = \log 2$

$4t(\log 1.000625) = \log 2$

$t = \dfrac{\log 2}{4\log 1.000625}$

$t = 277$

For the continuously compounded interest, r =0.23%

$A = Pe^{rt}$

$2P = Pe^{0.0023t}$

$2 = e^{0.0023t}$

$\ln 2 = \ln e^{0.0023t}$

$\ln 2 = 0.0023t$

$t = \dfrac {\ln 2}{0.0023}$

$t = 301$

The quarterly compounded doubles in 277 years.

The continuously compounded doubles in 301 years.

Answer: FYAB gives a better deal.