Answer:
At 5% compounded quarterly, the amount of $3,000 would be $3,482.
At 1.5% compounded monthly, the amount of $3,000 would be $3,138.
Step-by-step explanation:
Option 1:
Rate = r = 5%
Times = b = 4
y = a (1 + r)ⁿ
For compounded quarterly the rate of interest and Number of years will be written as follows:
y = a [1 + (r / b)]ⁿᵇ
y = $3,000 [1 + (0.05 / 4]³ ˣ ⁴
y = $3,000 [1 + 0.0125]¹²
y = $3,000 [1.0125]¹²
y = $3,000 x 1.160755
y = $3,482
Option 2:
Rate = r = 1.5%
Times = b = 12
y = a (1 + r)ⁿ
For compounded monthly the rate of interest and Number of years will be written as follows:
y = a [1 + (r / b)]ⁿᵇ
y = $3,000 [1 + (0.015 / 12]³ ˣ ¹²
y = $3,000 [1 + 0.00125]³⁶
y = $3,000 [1.00125]³⁶
y = $3,000 x 1.045998
y = $3,138
Hence As compared to Option 1, Option 2 has low rate of return by $344. Therefore Option 1 should be selected.
