Which investment do you recommend to your uncle?

Question

Your Uncle Black wants to help you get a start in life after college by setting aside $10,000 now- but you get it only after you finish college, three years from now. Since you are taking this course, he asks for your advice about three fairly safe investment opportunities.

 

Investment A pays 3.75% annual interest, compounded twice a year

 

Investment B pays 4% annual interest, but compounded only once a year

 

Investment C pays nothing until the end, when it pays 12%

 

Which investment do you recommend to your uncle?

Answer 1

A: (1 + 0.0375/2)⁶

B: (1 + 0.04)³

C: 0.12

 

Which one is the greatest?