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Jayden has $4300 that she wants to invest...?
Jayden has $4300 that she wants to invest in a mutual fund account for 2.5 years, at which time she plans to close out the account and use the money as a down payment on a condo. She finds one local bank offering an annual interest rate of 2.44%, compounded semi-annually (Bank 1) and another bank offering an annual interest rate of 2.21%, compounded annually (Bank 2). Which bank should she choose?
2 Answers
- BattleaxeLv 78 years agoFavorite Answer
A = P(1 + r/n)^(n)(t)
Bank 1:
A = 4300(1 + 0.0244/2)^(2)(2.5) = 4300(1.0625) = $4568.78
Bank 2:
A = 4300(1 + 0.0221/1)^(1)(2.5) = 4300(1.0562) = $4541.53
She should choose Bank 1.
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- ?Lv 78 years ago
No calculation necessary
Bank 1 has a higher interest rate and a shorter compounding period.
Bank 1 is the obvious choice.