Suppose that you have 6000 dollars to invest Which investmen

Suppose that you have 6000 dollars to invest. Which investment yields the greater return over 4 years: 8.25% compounded quarterly or 8.3% compounded semiannually?

Solution

Solution:

Let\'s find out the returns for both the situation & compare it to see which yield the greater return.

Return for 8.25% compounded quaterly:

R = 6000(1+0.825/4)^4*4

=> R = 6000(1.20625)¹⁶

=> R = $ 120544.8

and Return for 8.3% compounded semiannualy:

R\' = 6000(1+0.83/2)^2*4

=> R\' = $ 96427.9

Hence;

Return for 8.25% compounded quaterly is greater.