Financial Models

Question

4) Jim places $10,000 in a bank account that pays 11.9% compounded continuously. After 2 years, will he have enough money to buy a car that costs $12,677? If another bank will pay Jim 12% compounded quarterly, is this a better deal?

Answer 1

10,000*e^0.119*2 = $12,687.09

Yes.

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10,000*(1 + (r/n))^tn = 10,000*(1 + (0.12/4))^2*4

= $12,667.70

The first loan deal is slightly better than this one.