Investments Questions

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Recall our interest formulas.
Simple Interest: ?? = ??????
?? ????
Compound Interest: ?? = ?? (1 + ??)
Continuous Interest: ?? = ???? ????
?? = interest
?? = accumulated amount
?? = principal
?? = rate
?? = time (in years)
?? = number of times the interest is compounded in a year
Your friend Nathan tells you that it is always best to invest in accounts that accumulate interest with continuous
interest. What are your initial thoughts about Nathanàstatement?
Given ?? = $1000, ?? = 10%, and ?? = 2 ??????????, calculate interest for an account using simple interest, interest
compounded annually, semiannually, quarterly, monthly, and continuously.
After your calculations, do you currently agree or disagree with Nathanàstatement from earlier. Why?
Suppose you plan to invest $2,000 into one of two investments. Investment A has a rate of 9% and uses continuous
interest. Investment B has a rate of 9.2% and uses interest compounded monthly. Which one is the better
investment? Show your calculations.
Did your opinion of Nathanàstatement from earlier change? If so, what is your opinion now?
Which of the following two accounts would be a better investment. Investment A at ?? = 6.2% compounded
continuously, or investment B at ?? = 6.5%, compounded semiannually? Show your calculations.
What plays a more important factor in an investment and why, rate or compounding?
When comparing two different investment, what is important about the principal and the time?

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