Christopher Thompkins must decide how to invest 10000 that h

Christopher Thompkins must decide how to invest $10,000 that he just inherited. What would be the future value of his investment after five years under each of the following three investment opprotunities?

a. 6.28 percent compounded quarterly

b. 6.20 percent compounded monthly

c.6.12 percent compounded continuously

Solution

Investment = $10000

Formula for future value= investment*(1+(r/n))^(n*number of years)

a) Future value after five years = FV

n=4 (since compounded quarterly)

= 10000*(1+(0.0628/4))^20 = 25464

b) n=12 (since compounded monthly)

FV = 10000*(1+(0.0620/12))^60=13623

c) future value of continuous compounded= present value of investment* e^rt

FV = 10000*e^(0.0612*5)=13579