Question

Tavius wants to invest $2,500. Which option will earn him the best value?

Answer 1

Tavius would earn his best value if he invests in a  three-year certificate of deposit with a nominal interest rate of 4 percent.

Tavius would invest in the option that yields the highest interest. This is the best value. In order to determine which option is the best, the interest rate of each option has to be determined.

Interest rate of the first option

Interest earned = amount invested x time x interest rate

$2500 x 0.03 x 2 = $150

Interest rate of the second option

Interest earned = amount invested x time x interest rate

$2500 x 0.03 x 1 = $75

Interest rate of the third option

Interest earned = amount invested x time x interest rate

$2500 x 0.04 x 3 = $300

Interest rate of the fourth option

FV = P x (1 + r) n

$2500 x (1.03) = $75

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