Fidelity Federal offers three types of investments: 9.7% compounded annually, 9.6% compounded monthly, and 9.5% compounded continuously.

Question

which investment is the best deal?

 

Answer 1

Use the compounding formula A(t) = P(1+r/n)^nt for the first two parts of the question, with n=1 for annual compounding & n=12 for monthly compounding.  Use the A(t)=Pe^rt formula for the third question. In each case, use r as a decimal (move the dec. pt. left 2 places from the given % figures and let t=1 in each case & P=1. The best deal is the one that produces the largest computed result A(t).