Question

Mira has saved $25,000 over the years and she has the option of investing it in either of the two investment plans. Investment A offers 12 percent interest compounded monthly, whereas Investment B pays 13 percent interest compounded semiannually. The difference between the future values of the two investments if Mira's investment horizon is seven years is closest to: The second is 60,371.86 the first is 57,668.07

(A) $4,204.52
(B) $3,577.87
(C) $1,152.34
(D) $2,703.79
(E) $3,250.22

Answer 1

Answer:

The correct answer is D.

Explanation:

Giving the following information:

Mira has saved $25,000 over the years and she has the option of investing it in either of the two investment plans. Investment A offers 12 percent interest compounded monthly, whereas Investment B pays 13 percent interest compounded semiannually.

Investment A:

PV= 25,000

n= 7*12= 84

i=1% monthly

FV= PV*(1+i)^n

FV= 25,000*1.01^84= $57,668.07

Investment B:

PV= 25,000

n= 14

i= 6.5% semianually

FV= 25,000*1.065^14= $60,371.86

The difference is $2,703.79