Question

you are given an annual interest rate and compounding period for two investments. Decide which is the better investment.

8.6% Compounded Quarterly, 11% Compounded Yearly.

Please explain the answer.

Answer 1

If you invest $100 at 8.6% Compounded Quarterly for 1 year, how much will you have in the account?

Answer 2

Which formula do you use to solve? I am a little lost, I'm sorry.

Answer 3

The teacher did a horrible job at explaining it.

Answer 4

have you seen this formula before?

A = P*(1+r/n)^(n*t)

Answer 5

Yes

Answer 6

what are P, r, n, and t in this case?

Answer 7

In your question: $100 is the principle
8.6% rate
1 years (time)

Answer 8

and n = 4 since we're compounding quarterly (4 times a year)

Answer 9

plug that all in and evaluate to get A = ???

Answer 10

would the answer be 326.28 ?

Answer 11

no

Answer 12

ok where did i go wrong?

Answer 13

can you show me what you typed in?

Answer 14

100(1+(.086)(4))^ (4*1)

Answer 15

you forgot to divide, you should have

100(1+(.086)/(4))^ (4*1)

Answer 16

ohhh ok let me do that hold on

Answer 17

108.88 is the new answer

Answer 18

so if you deposit $100 into this account, you'll have $108.88 after 1 year

Answer 19

that is for the "8.6% Compounded Quarterly" account

Answer 20

for "11% Compounded Yearly" we'll have r = 0.11 and n = 1

P and t must be the same so you can do a proper comparison (so P = 100 and t = 1)

Answer 21

so if you were to deposit $100 into this new account, how much will be in the account after 1 year?