A client comes to you for investment advice on his $500,000 winnings from the lottery. He has been offered the following options by three different financial institutions and requests assistance to help understand which option would be the best for his investment.
Option 1: 6% compounded interest quarterly for 5 years. Option 2: 8% compounded interest annually for 5 years.

Question

A client comes to you for investment advice on his $500,000 winnings from the lottery. He has been offered the following options by three different financial institutions and requests assistance to help understand which option would be the best for his investment.
 Option 1: 6% compounded interest quarterly for 5 years. Option 2: 8% compounded interest annually for 5 years.

tkhunny · Answer

Option 1: 6% compounded interest quarterly for 5 years.
Option 2: 8% compounded interest annually for 5 years

On the surface, we seem to be missing Option 3.

A little deeper, one has to wonder why compounding would make any difference at all when comparing 6% to 8%!

Finally, You could calculate the values:

(1 + 0.06/4)^(4*5) = ??
(1 + 0.08)^5 = ??

anonymous · Answer

^ is for what??

tkhunny · Answer

^ means exponentiation.

3^2 = 9

4^3 = 64

25^(1/2) = $\sqrt{25}$ = 5

anonymous · Answer

(1 + 0.06/4)^(4*5) = 1.34685500655

tkhunny · Answer

Good.  And the other one?

anonymous · Answer

(1 + 0.08)^5 = 1.4693280768

anonymous · Answer

thankyou so much

tkhunny · Answer

Very good.  Now, how about that third option?

anonymous · Answer

There wasn't a third option...

anonymous · Answer

Explain to the client the main differences between simple interest versus compound interest.
 That is the only other question

tkhunny · Answer

"...options by three different financial..."? Oh, well.