Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices.
Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually
Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly
You can assume that x is larger than y.
Which option does he prefer?
The option with the highest future value
Option 1 because the interest rate is higher
Option 2 because his funds compound quarterly
We cannot compare these options because one compounds quarterly and one annually
Transcribed Image Text:Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually
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