SOLUTION: Hi which of the following rates would give the best return on $1500 invested for 3 years. a) 12% compounded annually b) 1% compounded monthly my answer was a) the text

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Question 1135359: Hi
which of the following rates would give the best return on $1500 invested for 3 years.
a) 12% compounded annually
b) 1% compounded monthly
my answer was a) the textbook said b) who is correct?
thanks
Found 2 solutions by ikleyn, Alan3354:
Answer by ikleyn(52803)   (Show Source): You can put this solution on YOUR website!
.

1.  $1500 invested for 3 years at 12% annual interest rate compounded annually


    Future value FV =  = $2107.39.



2.  $1500 invested for 3 years at 1% annual interest rate compounded monthly


    Future value FV =  = $1545.66.



3.  You compare.

If the textbook said b), it means that the person, who is responsible for this part in the textbook,
does not understand terminology correctly.

He, probably, interprets part b) as 

    Future value FV =  = $2146.15.

It is, really, greater than a), but it is called 

    $1500 invested for 3 years at 12% annual interest rate compounded monthly.



Answer by Alan3354(69443)   (Show Source): You can put this solution on YOUR website!
b) 1% compounded monthly
my answer was a) the textbook said b) who is correct?
===========
Interest is usually stated in % per year.
-----
1% per month compounded monthly gives
$1500*(1.01)^36 = $2146.15
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It's a poorly written problem.
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