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Question 116886: The formula for calculating the amount of money returned for an initial deposit into a bank account or CD (certificate of deposit) is given by
A is the amount of the return.
P is the principal amount initially deposited.
r is the annual interest rate (expressed as a decimal).
n is the number of compound periods in one year.
t is the number of years.
Carry all calculations to six decimals on each intermediate step, then round the final answer to the nearest cent.
Suppose you deposit $4,000 for 8 years at a rate of 7%.
Does compounding annually or monthly yield more interest? Explain why
Answer by checkley71(8403)   (Show Source):
You can put this solution on YOUR website! I'LL LET YOU DECIDE WHICH IS THE BEST PLAN BY CALCULATING BOTH THE ANNUAL AND THE MONTHLY COMPOUNDING PLANS.
FIRST THE ANNUAL PLAN
A=P(1+R/N)^NT
A=4,000(1+.07)^8
A=4,000(1.07)^8
A=4,000*1.718186
A=6,872.74 ANSWER FOR ANNUAL COMPOUNDING.
MONTHLY COMPOUNDING WOULD BE:
A=4,000(1+.07/12)^12*8
A=4,000(1+.005833)^96
A=4,000(1.005833)^96
A=4,000*1.747771
A=6,991.08 ANSWER FOR MONTHLY COMPOUNDING.
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