Question

Joshua invested $750 in an account paying an interest rate of 3\tfrac{1}{4}3 4 1 ​ % compounded quarterly. Josiah invested $750 in an account paying an interest rate of 2\tfrac{5}{8}2 8 5 ​ % compounded annually. After 18 years, how much more money would Joshua have in his account than Josiah, to the nearest dollar?

Answer 1

Answer:

Due to the difference in the interest rate and the quarterly compounding, Joshua will have $212.24 more than Josiah.

Step-by-step explanation:

Giving the following information:

Joshua:

Initial investment (PV)= $750

Interest rate (i)= 0.0341/4= 0.008525

Number of periods (n)= 18*4= 72 quarters

Josiah:

Initial investment (PV)= $750

Interest rate (i)= 0.0285

Number of periods (n)= 18 years

To calculate the future value of each one, we need to use the following formula:

FV= PV*(1 + i)^n

Joshua:

FV= 750*(1.008525^72)

FV= $1,381.98

Josiah:

FV= 750*(1.0285^18)

FV= $1,169.74

Due to the difference in the interest rate and the quarterly compounding, Joshua will have $212.24 more than Josiah.