Answer:
The answer is below
Step-by-step explanation:
The compound interest is given by the formula:
[tex]A=P(1+\frac{r}{n} )^{nt}\\\\Where\ A \ is\ the\ final \ amount, P\ is\ the \ principal\ or \ initial\ amount,r\ is\ the\ rate\\n\ is\ the\ number\ of \ times\ compounded\ per\ period\ and \ t\ is\ the\ number\ of\ periods.\\[/tex]
For the same amount of principal (P) for both plan A and B:
Plan A offers a quarterly compounded interest rate of 0.15%. That is r = 0.15% = 0.0015, n = 4. Therefore:
[tex]A_a=P(1+\frac{0.0015}{4} )^{4t}\\\\A_a=P(1+0.000375)^{4t}\\\\A_a=P(1.000375)^{4t}[/tex]
Plan B offers annual compounded interest rate of 0.5%. That is r = 0.5% = 0.005, n = 1. Therefore:
[tex]A_b=P(1+\frac{0.005}{1} )^{t}\\\\A_b=P(1.005)^{t}\\\\The\ ratio\ of\ their\ interest:\\\\\frac{A_a}{A_b} =\frac{P(1.000375)^{4t}}{P(1.005)^{t}} \\\\\frac{A_a}{A_b} =\frac{(1.000375)^{4t}}{(1.005)^{t}} \\\\For\ the\ same\ time\ period\ of\ one\ year(t)=1\\\\\frac{A_a}{A_b} =\frac{(1.000375)^{4(1)}}{(1.005)^{1}} \\\\\frac{A_a}{A_b} =\frac{1.0015}{1.005} \\\\A_b=\frac{1.005A_a}{1.0015}\\ \\A_b=1.003A_b[/tex]
Plan B is the better plan, it is greater by a factor of 1.003
