Answer:
Lauren's method would be the best for having more money after leaving the initial deposit untouched for 2 years.
Step-by-step explanation:
1. Let's review the information given to us to answer the question correctly:
Initial amount = $ 500
Korey's interest rate = 3% compounded quarterly = 0.03/4
Lauren's interest rate = 4% compounded monthly = 0.04/12
2. Who's idea will really pay off? Which method would be the best for having more money after leaving the money untouched for 2 years.
Let's use the compound interest formula this way:
A = P * (1 + r/n) ⁿˣ, where:
A = final balance of the account
P = initial deposit ($ 250)
r = interest rate (0.03/4 or 0.04/12)
n = number of times interest applied per time period (4 quarters or 12 months)
x = number of time periods elapsed (2 years)
Now we can calculate Korey's method this way:
A = 500 * (1 + 0.03/4)⁴°²
A = 500 * (1.0075)⁸
A = 500 * 1.061598848
A = $ 530.80 (Rounding to the next cent)
Now we can calculate Lauren's method this way:
A = 500 * (1 + 0.04/12)¹²°²
A = 500 * (1.0033)²⁴
A = 500 * 1.083142959
A = $ 541.57 (Rounding to the next cent)
Lauren's method would be the best for having more money after leaving the initial deposit untouched for 2 years.
