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Hattie has recently inherited $5100...?
Hattie has recently inherited $5100, which she wants to deposit into an IRA account. She has determined that her two best bets are an account that compounds annually at an annual rate of 5.1% (Account 1) and an account that compounds quarterly at an annual rate of 4.7%. (Account 2)
Which account will pay Hattie more interest? Include answers please.
Also..
How much would Hattie's balance be from the account chosen in the first step over 2.3 years? Round to two decimal places.
3 Answers
- BattleaxeLv 78 years agoFavorite Answer
A = P(1 + r/n)^(n)(t)
Account 1:
A = 5100(1 + 0.051/1)^(1)(2.3) = 5100(1.212) = $5718.16
I = 5718.16 - 5100 = $618.16
Account 2:
A = 5100(1 + 0.047/4)^(4)(2.3) = 5100(1.01175)^9.2 = 5100(1.113) = $5678.63
I = 5678.63 - 5100 = $578.63
- .--
- 8 years ago
Question 1:
For account 1, Hattie's money will be multiplied by 1.051 (1 + 5.1%).
Whereas for account 2, Hattie will receive 4.7% per quarter, meaning her money will scale by (1.047)⁴ = 1.202 per year, which equates to an annual rate of about 20.2%
Her money will be better off in the 2nd account.
Question 2:
After 2.3 years, the quarterly compound interest will have taken effect 9 times. This is 4 in the first year, 4 in the second and then once within the extra .3 of the year.
$5100 * (1.047)⁹ = $7710.64
Source(s): Magic
