anonymous
  • anonymous
Help !!
Mathematics
  • Stacey Warren - Expert brainly.com
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SOLVED
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chestercat
  • chestercat
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anonymous
  • anonymous
Larry and Peggy are making decisions about their bank accounts. Larry wants to deposit $350 as a principle amount, with an interest of 4% compounded quarterly. Peggy wants to deposit $350 as the principle amount, with an interest of 6% compounded monthly. Explain which method results in more money after 2 years.
anonymous
  • anonymous
When they said compounded, do they mean that the money will be added or removed?
batman19991
  • batman19991
do you have any options

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anonymous
  • anonymous
Nope, it's an essay answer
anonymous
  • anonymous
I'm kinda stuck because seems obvious which is better because the amount is the same and the 4% quarterly is alot less than 6% monthly. But I don't know if they remove or add the money to it.
campbell_st
  • campbell_st
Well i'd say you need to calculate the future value of each investment option... and then look at who has the most money and why
campbell_st
  • campbell_st
do you know the compound interest formula...?
anonymous
  • anonymous
So when they say "compounded" is it added ?
anonymous
  • anonymous
A = P(1 + r/n)nt
campbell_st
  • campbell_st
because the interest is added to the principal and reinvested.... is a a very basic explanation
campbell_st
  • campbell_st
that seems to be the correct formula... you would need to express r as a decimal
campbell_st
  • campbell_st
are the interest rates 4% and 6% per annum or p.a.?
anonymous
  • anonymous
4% quarterly, so every 3 months. 6% is monthly
campbell_st
  • campbell_st
just seems a little odd... but anyway Larry's Investment is \[A = 350(1 + 0.04)^{4 \times 2}\] Peggy's investment \[A = 350(1 + 0.06)^{12 \times 2}\]
campbell_st
  • campbell_st
looking at the formula you provided the interest may be per annum. since the formula has you dividing by the number of compounding periods in a year. but anyway, do the calculations... see who has the most money... and one of the things to realise is the more compounding periods the more interest you will earn
anonymous
  • anonymous
I understand now, thank you so much, I think I can get it from here
anonymous
  • anonymous
I was confused on the "^nt" area but looking at what you gave made me realize it.
anonymous
  • anonymous
@campbell_st Wait, the formula was A = P(1 + r/n)nt but you made as A = P(1 + r)nt. Which one is it?
anonymous
  • anonymous
For the one you gave me A = 350(1 + 0.04)^(4 *2) I get 479. For A = 350(1 + 0.04/4)^(4 *2) I get 379.
campbell_st
  • campbell_st
well if the interest rate is 4% per annum and then compounded quarterly r/n = 0.04/4 and for the compounded monthly question if the interest rate is 6% p.a. then r/n = 0.06/12 that's why I asked if the interest was per annum, for both investments... you reply was that the rates were per quarter and per month respectively So then for both investments you just just the interest rate as a decimal

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