John has $100,000 to invest for 9 years, and has two options. Bank A is offering

Question

John has $100,000 to invest for 9 years, and has two options. Bank A is offering 3% interest compounded quarterly. Bank B is offering 2.5% interest compounded daily. Use this information to answer questions 1, 2 and 3. Round your answers to the nearest whole dollar (example: 5048).

If John invests his money with Bank A, how much money will he have in the account after 9 years. Note, I'm looking for the total amount including the principal and interest, not just the interest income. ( ?)

If John invests his money with Bank B, how much money will he have in the account after 9 years. Note, I'm looking for the total amount including the principal and interest, not just the interest income. (?)

Explanation / Answer

Formula for Cumulative Amount, A = P x (1+r)^n Where A is the Cumulative Amount, P is the original Amount, r = interest rate for each period, and n = number of periods. For Bank A: No of Quarters are 9 x 4 = 36. Interest rate = 3% per annum So, r = 3/(4x100)=0.0075 Hence A = 100,000 x (1.0075)^36 Therefore, A =$130,864.5 Answer: $130,864.5 For Bank B: No of Quarters are 9 x 365 = 36. Interest rate = 2.5% per annum Hence A = 100,000 x (1+2.5/36500)^3285 Therefore, A =$125,231.31 Answer: $125,231.31

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