Question

Which is the better choice: $1000 deposited for a year: you must show your work below.

a. at a rate of 5.5% compounded monthly?
b. at a rate of 5.4% compounded daily?
c. at a rate 4.5% compounded continuously?

Answer 1

a. The multiplier is (1 +.055/12)^12 ≈ 1.0564079

b. The multiplier is (1 +.054/365)^365 ≈ 1.0554804

c. The multiplier is e^.045 ≈ 1.0460279

The rate 5.5% compounded monthly is the better choice.