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. Option 3: 14.5% simple interest for 10 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.     Option 3: 14.5% simple interest for 10 years.

anonymous · Answer

$$A = P* (1+ (r/n))^{nt}$$

That's the compound interest formula. Where:
P = principal amount (the initial amount you borrow or deposit)
r  = annual rate of interest (as a decimal)
t  = number of years the amount is deposited or borrowed for.
A = amount of money accumulated after n years, including interest.
n  =  number of times the interest is compounded per year 

so you just need to plug in values for the 3 cases, and compare :)