Trish invests $5,000 in her IRA in a bond trust that pays 9% interest compounded quarterly. Sean invests $5,000 in his IRA in a certificate of deposit that pays 8.9% compound continuously. who has more money after 20 years, Trish or Sean? After 20 years Trish will have ? After 20years, Sean will have? Who will have more money after 20years? Trish or Sean?
A = a(1+r/n)nt
A: a return
a: invested money
r: annual interest
n: compounding frequency per year
t: number of year
when n →∞, then
A = a*exp(rt)
Quarterly compounded (9% annual interest): A = 5000*(1+0.09/4)4*20
continuously compounded (8.9% annual interest): A= 5000*exp(0.089*20)
Practically, they will have the same money in 20 yrs.