Question

greg c one of our team leaders.... saving money to complete his dream hobby project what is the future value $2000 is invested at 12% compounded after 10 years

method a) every 6 months

B) quartely

c) monthly

d) every other 2 years

f) which method do you recommend to

A) invest

b) not invest

C)explain why?

Answer 1

Solution-

We know the formula for compound interest is

.....(1)

Here,

P = Initial value of investment

A= Final amount

r= rate of interest in decimal

t= time in years

n= number of interest applied for the time period

We have

Initial value=P= $2000

rate of interest= 12% = 0.12

Time t= 10 years

On putting these values in equation(1), we get

....(2)

Now,

(a)

If compounded for every 6 months, then n=2

Putting n=2, in equation (2), we get the amount after 10 years

(B) Of Compounded quartely then n= 4

On putting n =4 in equation(2), we get the amount after 10 years as

(c)If compounded monthly then n=12

Putting n=12 in equation(2), to get

(d) If compounded after every 2 year then n=0.5.

Putting n=0.5 in equation, we get the final amount as

(f)

We must recommend

(a-c) To invest for compounded monthly because it gives maximum final amount as calculated above.

(b-c) Not to invest for compounded after every 2 years because it results in minimum final amount as calculated above.