Question

you have 500,000 dollars explain each scenerio and decide which is the best one to use??
Option 1: 6% compounded interest quarterly for 5 years.
Option 2: 8% compounded interest annually for 5 years.
Option 3: 14.5% simple interest for 10 years.

Answer 1

\[A = P(1 + \frac{ r }{ n })^{nt}\]
P = principal amount
r = annual rate of interest (as a decimal)
t = number of years the amount is deposited or borrowed for
n = number of times the interest is compounded per year
A = amount of money accumulated after n years, including interest.

Answer 2

Option 1: 6% compounded interest quarterly for 5 years.
P = 500,000
r = (6/100) or 0.06
t = 5
n = 4

So we get:

A = 500,000(1 + (0.06/4))^(4*5)
A = 673427.50

Answer 3

Option 2: 8% compounded interest annually for 5 years.
P = 500,000
r = (8/100) or 0.08
t = 5
n = 1

So we get:

A = 500,000(1 + 0.08))^5
A = 734664.04

Answer 4

All you really need to do is remember the formula and what every variable in the formula stands for and these problems should be easy from there.