Linda inherited a sum of $50,000 from one of her grandparents. she would like to wisely invest the inheritance in one of the following three investment opportunities available for a period of 10 years. choose the best investment opportunity for linda from the following alternatives: i) 9% compounded quarterly. ii) 8.90% compounded hourly. iii) 8.95% compounded monthly.

Comparison shows that the best investment is 8.95% compounded monthly. (Part C or Number 3 option is best)

Explanation:

General Formula For Future Value:

Where:

FV is the future Value

PV is the present Value

i is the interest rate

n is the compound interest period

k is the Total number of years

Part A:

when i=9% . Using above formula:

n is the quarters in 1 year=4

Part B:

when i=8.90% . Using above formula:

Considering year of 365 days

n is the hours in 1 year=24*365=8760 hr/year

Part C:

when i=8.95% . Using above formula

n is the months in 1 year=12 months

The above comparison shows that the best investment is 8.95% compounded monthly. (Part C or Number 3 option is best)

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