Answer:
the first plan is better
this is because the effective annual interest of the first plan is 7.23 which is higher than that of the second plan which is 7.09. this means that the interest rate of the first option would be higher
2. the future value of option 1 is higher than that of option 2
Step-by-step explanation:
The effective annual rate can be used to determine which option is better
the option with the higher effective annual rate is the better option
Effective annual rate = (1 + APR / m ) ^m - 1
M = number of compounding
(1 + 0.07/12)^12 - 1 = 7.23%
option 2
EAR = e^r - 1
2.7182818^0.0685 - 1 = 7.09%
2nd method of determining the better investment is to determine the future value of each option
Option 1 : 800( 1 + 0.07/12)^(12 x6) = 1216.08
option 2 = 800e^(0.0685 x 6) = 1206.60
option 1 has the higher future value
