Melvin Indecision has difficulty deciding whether to put his savings in Mystic B

Question

Melvin Indecision has difficulty deciding whether to put his savings in Mystic Bank or Four Rivers Bank. Mystic offers 10% interest compounded semiannually. Four Rivers offers 6% interest compounded quarterly. Melvin has $10,800 to invest. He expects to withdraw the money at the end of 5 years. Calculate interest for each bank and identify which bank gives Melvin the better deal? (Use the Table provided.) (Do not round intermediate calculations. Round your answer to the nearest cent.)

Mystic $ Four Rivers $ Better deal: Mystic Bank N CN CN CN CN CN CN CNN. CN CN m CN CN CN m CN CN in CN CN CN CN CN m CN CN CN CN m CN CN CN CN CN CN CN ON CN CN CN CN CN r CN CN CN CN CN N m CN CN CN CN CN CNN. N CN CN CN CN. CN in CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN m CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN CN

Explanation / Answer

Solution:

for Mystic Bank

A = P(1 + (r/n))^(nt)
for the 10% interest compounded semiannually
P = $10,800
r = 10% = 0.10
n = 2 for semiannual compounding which is 2 times a year
t = 5 years
A = amount after time t
A = 10,800(1 + (0.10/2)^(2*5)
A = $17592.06 is the amount to be withdrawn after 5 years at 10% interest compounded semiannually

Now for

Four Rivers Bank.

A = P(1 + (r/n))^(nt)
for the 6% interest compounded quarterly
P = $10,800
r = 6% = 0.06
n = 4 for quarterly compounding which is 4 times a year
t = 5 years
A = amount after time t
A = 10800(1 + (0.06/4)^(4*5)
A = $14,546.03 is the amount to be withdrawn after 5 years at 6% interest compounded quarterly

thus fromabove we can see that

Best deal is offerered by Mystic Bank

Mystic offeres $17592.06    Four Rivers   $14,546.03   

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---