Question

In: Finance

John has two options for investing her $10,000 in savings:Bank 1 offers a Certificate of...

John has two options for investing her $10,000 in savings:

Bank 1 offers a Certificate of Deposit with a 9.82% interest rate compounded annually.

Bank 2 also offers a Certificate of Deposit with a 9.82% interest rate, but the compounded monthly.

At over 15 years, how much more interest will John earn at Bank 2 than at Bank 1? Enter your answer rounded to the nearest dollar, without the "$".

Solutions

Expert Solution

1. Future value of investment in Bank 1 = Amount * (1 + Interest)^Years = 10000 * 1.0982^15 = $40759 (Rounded off)

2. Future value of investment in Bank 2 = Amount * (1 + Interest per month)^periods = 10000 * 1.00818^180 = $43362 (Rounded off)

3. At over 15 years, how much more interest will John earn at Bank 2 than at Bank 1?

Additional interest earned by Bank 2 = 43362 - 40759 = $2603 (answer)

jeff jeffy answered 2 years ago
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