Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank should she use if she wishes to maximize her investment?
A) Bank A, which offers a simple rate of 4%.
B) Bank B, which offers a simple rate of 5%.
C) Bank C, which offers a rate of 4% compounded annually.
D) Bank D, which offers a rate of 5% compounded monthly.
E) Bank E, which offers a rate of 5% compounded annually.

Question

Quizplus · Accepted Answer

Bank D, which offers a rate of 5% compounded monthly, will provide the highest return due to the effects of monthly compounding interest, which allows interest to be earned on previously earned interest more frequently than annual compounding.

Isabelle Wants to Invest $1,000