eloe: 1 -5.00 points Melvin Indecision has difficulty deciding whether to put hi

Question

eloe: 1 -5.00 points Melvin Indecision has difficulty deciding whether to put his savings in Mystc Bank or Four Rewers Bank Mystic offers 13% nterest compounded semiannually Four Rvers offers 12% quarterly Melvin has $11,600 to inwest. He expects to withdraw the money at the end of 6 inter est compounded years Calculate the interest eamed at the and of Melvin's investment period at each bank identity which bank gives him the better dea? (Do not round intermediate calculations. Round your answer to the nearest cent.) Four RiversBetler deal Interest (Clck to select)

Explanation / Answer

Answer:

Mystic Bank:

Amount = Principal * (1 + r)^n
Principal = $11,600
Interest Rate = 13%
Semi-annual Interest Rate = 13 / 2 = 6.5%
n = Time period = 6 years = 12 semi-annual period
Amount = 11,600 * (1 + 0.065)^12
Amount = 11,600 * (1.065)^12
Amount = 11,600 * 2.1291
Amount = $24,697.56

Interest = Amount – Principal
Interest = $24,697.56 - $11,600
Interest = $13,097.56

Four Rivers Bank:

Amount = Principal * (1 + r)^n
Principal = $11,600
Interest Rate = 12%
Quarterly Interest Rate = 12 / 4 = 3%
n = Time period = 6 years = 24 Quarters
Amount = 11,600 * (1 + 0.03)^24
Amount = 11,600 * (1.03)^24
Amount = 11,600 * 2.0328
Amount = $23,580.48

Interest = Amount – Principal
Interest = $23,580.48 - $11,600
Interest = $11,980.48

Four Rivers Bank offer at 12% Interest Compounded quarterly is better deal as comparison to offer of Mystic Bank, as it will incur lesser interest expenses.

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