Respuesta :
Using compound interest and continuous compouding, it is found that:
a) The investment at 4% compounded quarterly will earn more interest in 4 years.
b) The better plan will earn $537 more.
What is compound interest?
The amount of money earned, in compound interest, after t years, is given by:
[tex]A(t) = P\left(1 + \frac{r}{n}\right)^{nt}[/tex]
In which:
- A(t) is the amount of money after t years.
- P is the principal(the initial sum of money).
- r is the interest rate(as a decimal value).
- n is the number of times that interest is compounded per year.
In this problem, the parameters are: P = 50000, r = 0.04, n = 4, t = 4, hence the amount will be of:
[tex]A(t) = P\left(1 + \frac{r}{n}\right)^{nt}[/tex]
[tex]A(4) = 50000\left(1 + \frac{0.04}{4}\right)^{4 \times 4}[/tex]
A(4) = $58,629.
What is the continuous compounding formula?
It is given by:
[tex]A(t) = Pe^{rt}[/tex]
In this problem, this option has r = 0.0375, hence:
[tex]A(4) = 50000e^{0.0375 \times 4} = 58092[/tex]
Then:
Item a:
The investment at 4% compounded quarterly will earn more interest in 4 years.
Item b:
58629 - 58092 = $537.
The better plan will earn $537 more.
More can be learned about compound interest at https://brainly.com/question/25781328
