Question

With a principal investment of $19,200, which account will have the greatest value after 5 years? simple interest: I = P • r • t interest compounded annually is A = P (1 + r)t interest compounded quarterly: A = P (1 + )4t A. 3.6% with interest compounded annually B. 3.8% in a simple interest account C. 3.4% with interest compounded annually D. 3.2% with interest compounded quarterly

Answer 1

Given:
Principal: 19,200
term: 5 years

a) Interest compounded annually:
A = 19,200 (1 + 0.036)^5
A = 19,200 (1.036)^5
A = 19,200 (1.1934)
A = 22,913.28

b) Simple Interest
I = 19,200 * 0.038 * 5
I = 3,648.38

19,200 + 3,648.38 = 22,848.38

c) Interest compounded annually
A = 19,200 (1 + 0.034)^5
A = 19,200 (1.034)^5
A = 19,200 (1.182)
A = 22,694.40

d) Interest compounded quarterly
A = 19,200 (1 + 0.032/4)^4*5
A = 19,200 (1 + 0.008)^20
A = 19,200 (1.008)^20
A = 19,200 (1.173)
A = 22,521.60