Question

Sean compares two investment plans. He has $1,800 to invest and has the following options:Plan A: The investment will earn 5% interest compounded annually.Plan B: The investment will add $150 to the account annually.Sean made the table below to compare the projected values of the investments over time under the two plans.Which of the following pieces of investment advice is true?Question 16 options:Plan A is the best option if Sean plans to withdraw the money in 10 years.Plan A is the best option if Sean plans to withdraw the money in 25 years.Plan B is the best option if Sean intends to hold the investment for life and pass it on to his children.Plan B is the best option regardless of how long Sean intends to hold the investment.

Answer 1

Given

Invest $1800

Plan A: The investment will earn 5% interest compounded annually.

Plan B: The investment will add $150 to the account annually.

Find

Which investment advice is true?

Explanation

From given condition we draw a table which represent the investment in t years.

PLan A

In 1 year ,

P = 1800

t = 1 yr

r =5%

$\begin{gathered} A=P(1+\frac{r}{100})^t \\ A=1800(1+\frac{5}{100})^1 \\ A=1800(\frac{21}{20}) \\ A=1890 \end{gathered}$

Plan B

in 1 year

he add $150 annually , so 1800+150 = 1950

similarly we find for the remaining to draw a below table

so , from table we see that Plan A is the best option if Sean plans to withdraw the money in 25 years.

Final Answer

Therefore , the correct option is B.