Question

Determine which is the better investment: 5.02% compounded semiannually or 4.95% compounded quarterly. Round youranswers to 2 decimal places.х$The 5.02% semiannual investment gives an effective rate of %.The 4.95% quarterly investment gives an effective rate of %.Therefore, the (Elija una opción)7investment is a better investment.checkSave for laterDeliver the

Answer 1

We will have the following:

*First: We will solve for the first scenario:

$r=(1+\frac{0.0502}{2})^2-1\Rightarrow r\approx0.05083001\ldots$$\Rightarrow r\approx0.05$

We will solve for the second scenario:

$r=(1+\frac{0.0495}{4})^4-1\Rightarrow r\approx0.0542644766\ldots$$\Rightarrow r\approx0.05$

From these rates we can see that (If rounded) both rates will be equivalent, but the sligthly better one (If not rounded) would be the second option of compounding.