Answer:
10.5% compounded quarterly will be worth more at the end of 7 years.
Step-by-step explanation:
Investment 1:
Principal=$1,000
t=7 years
n=12 months
r=9%=0.09
FV=PV(1+r/n)^nt
Where,
FV=future value
PV=present value
r=interest rate
t=time (years)
n=number of periods
FV=PV(1+r/n)^nt
=1000(1+0.09/12)^12*7
=1000(1+0.0075)^84
=1000(1.0075)^84
=1000(1.8732)
=1,873.2
FV=$1,873.2
Investment 2:
Principal=$1,000
t=7 years
r=10.5%=0.105
n=4
FV=PV(1+r/n)^nt
=1000(1+0.105/4)^4*7
=1000(1+0.02625)^28
=1000(1.02625)^28
=1000(2.0658)
=2,065.8
FV=$2,065.8
10.5% compounded quarterly will be worth more at the end of 7 years.
