Question

Patrick and Brooklyn are making decisions about their bank accounts. Patrick wants to deposit $300 as a principle amount, with an interest of 3% compounded quarterly. Brooklyn wants to deposit $300 as the principle amount, with an interest of 5% compounded monthly. Explain which method results in more money after 2 years. Show all work.

Answer 1

Patrick:
P = $300
I = 3% compounded quarterly
T = 2 years

Brooklyn:
P = $300
I = 5% compounded monthly
T = 2 years

Patrick: amount =
\[p(1 + \frac{ r }{ 100 })^n\]
\[CI = 300 (1 + \frac{ 3 }{ 400 }) = $318.48\]

Brooklyn: amount =
\[300 (1 + \frac{ 5 }{ 1200 })^{24} = $331.48\]

Compounded monthly is more beneficial than compounded quarterly.