SOLUTION: Fashima has $8000 to invest in an RESP(Registered Education Savings Plan) for seven years.Which of the following two investment options should she choose? Justify your reasoning.

Question 314520: Fashima has $8000 to invest in an RESP(Registered Education Savings Plan) for seven years.Which of the following two investment options should she choose? Justify your reasoning.
Option 1: 6% compounded semi-annually
Option 2: 7.5% simple interest
I'd really appreciate it if someone could help me out. I'm assuming they're asking in which option will she make the most investment after 7 years?
Answer by stanbon(75887) (Show Source): You can put this solution on YOUR website!
.Which of the following two investment options should she choose? Justify your reasoning.
Option 1: 6% compounded semi-annually
A(t) = P(1+(0.06/2))^(2t)
A(1) = P(1.03)^2
A(1) = P(1.0609)
----------------------------
Option 2: 7.5% simple interest
A(t) = P(1+rt)
A(1) = P(1+0.075)
A(1) = P(1.075)
-------
Answer: It depends on how many years you leave
the money in the investment plan.
From the work above the simple iinterest is better
for one year. But in the long run the compound
interest plan will be a better investment.
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Cheers,
Stan H.
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