Question

27. Reason Adam invests $8,000 in an account that

earns 1.25% interest, compounded quarterly
for 20 years. On the same date, Jacinta invests
$8,000 in an account that earns continuous
compounded interest at a rate of 1.25% for
20 years. Who do you predict will have more
money in their account after 20 years? Explain
your reasoning.

Answer 1

Jacinta will have more money

Explanation:

• For the same amount of investment and interest rate, compound interest is greater with greater number of compounds.
• Continuous compound is closer to daily compound which makes more compounds and returns than quarterly compound.

The interest amount is provided below for quarterly and daily compound:

• 2,268.20
• 2,307.89

Jacinta will have more money