Question

Mauro has $500 to invest in one of two accounts for 3 years.

Account 1 earns 1.2% interest compounded monthly.
Account 2 earns 1.3% interest compounded semiannually.
Which account has a higher return, and how much?

Answer 1

To compare the returns of Account 1 and Account 2, calculate the final amount in each account after 3 years using compound interest. Compare the amounts to determine the account with a higher return and calculate the difference in returns.

Step-by-step explanation:

To compare the returns of Account 1 and Account 2, we need to calculate the final amount in each account after 3 years using compound interest.

For Account 1: Principal amount = $500, Interest rate = 1.2% compounded monthly.

The formula to calculate the final amount in Account 1 is: Final Amount = Principal x (1 + (Interest Rate/100))^Number of times interest is compounded.

For Account 2: Principal amount = $500, Interest rate = 1.3% compounded semiannually.

The formula to calculate the final amount in Account 2 is the same as Account 1, but with a different interest rate.

After calculating the final amounts in both accounts, we compare them to determine the account with a higher return and calculate the difference in returns.