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anonymous

  • one year ago

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  1. anonymous
    • one year ago
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    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.

  2. anonymous
    • one year ago
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    When they said compounded, do they mean that the money will be added or removed?

  3. batman19991
    • one year ago
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    do you have any options

  4. anonymous
    • one year ago
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    Nope, it's an essay answer

  5. anonymous
    • one year ago
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    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.

  6. campbell_st
    • one year ago
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    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

  7. campbell_st
    • one year ago
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    do you know the compound interest formula...?

  8. anonymous
    • one year ago
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    So when they say "compounded" is it added ?

  9. anonymous
    • one year ago
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    A = P(1 + r/n)nt

  10. campbell_st
    • one year ago
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    because the interest is added to the principal and reinvested.... is a a very basic explanation

  11. campbell_st
    • one year ago
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    that seems to be the correct formula... you would need to express r as a decimal

  12. campbell_st
    • one year ago
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    are the interest rates 4% and 6% per annum or p.a.?

  13. anonymous
    • one year ago
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    4% quarterly, so every 3 months. 6% is monthly

  14. campbell_st
    • one year ago
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    just seems a little odd... but anyway Larry's Investment is \[A = 350(1 + 0.04)^{4 \times 2}\] Peggy's investment \[A = 350(1 + 0.06)^{12 \times 2}\]

  15. campbell_st
    • one year ago
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    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

  16. anonymous
    • one year ago
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    I understand now, thank you so much, I think I can get it from here

  17. anonymous
    • one year ago
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    I was confused on the "^nt" area but looking at what you gave made me realize it.

  18. anonymous
    • one year ago
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    @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?

  19. anonymous
    • one year ago
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    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.

  20. campbell_st
    • one year ago
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    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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