Choose the one alternative that best completes the statement or answers the question.
Solve the problem.
-Which of the two rates would yield the larger amount in 1 year: 5.2% compounded monthly or 5.1% compounded daily?
A) 5.2% compounded monthly
B) 5.1% compounded daily
C) They will yield the same amount.

Question

Quizplus · Accepted Answer

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the time in years. Compounding more frequently at a slightly lower rate (5.1% daily) does not necessarily yield more than a slightly higher rate compounded less frequently (5.2% monthly). The 5.2% compounded monthly will yield a larger amount due to the higher interest rate despite the less frequent compounding compared to 5.1% compounded daily.

Choose the One Alternative That Best Completes the Statement or Answers