math questions

Question

Determine the effective annual yield to the nearest tenth of a percent for each Investment.  Then select the best Investment. 

 

A. 5%compounded monthly 

 

B. 5.1% compounded  quaterly

 

Please use the Formular and show me the steps for each

Answer 1

(1+.05/12)^12 = 1.05116

(1+.051/4)^4 = 1.05198

monthly at 5% is worse than 5.1% quarterly

but not by much for a short time period

general formula is

A=P(1+r/n)^nt

where r = APR, annual rate of interest

n = number of compounding periods per year

t = time in years

P = starting amount

A = ending amount