Charlie has $10,000 to invest for a period of 5 years. The following three alternatives are available to Charlie: Account I pays 4% for the 1st year, 6% for year 2, 8% for year 3, 10% for year 4, and 12% for year 5, all with annual compounding. Account II pays 12% for the 1st year, 10% for year 2, 8% for year 3, 6% for year 4, and 4% for year 5, all with annual compounding. Account III pays interest at the rate of 7.96294% per year for all 5 years. Based on the available balance at the end of year 5, which alternative is Charlie’s best choice?
Charlie has $10,000 to invest for a period of 5 years. The following three alternatives are available to Charlie: Account I pays 4% for the 1st year, 6% for year 2, 8% for year 3, 10% for year 4, and 12% for year 5, all with annual compounding. Account II pays 12% for the 1st year, 10% for year 2, 8% for year 3, 6% for year 4, and 4% for year 5, all with annual compounding. Account III pays interest at the rate of 7.96294% per year for all 5 years. Based on the available balance at the end of year 5, which alternative is Charlie’s best choice?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Charlie has $10,000 to invest for a period of 5 years. The following three alternatives are available to Charlie: Account I pays 4% for the 1st year, 6% for year 2, 8% for year 3, 10% for year 4, and 12% for year 5, all with annual compounding. Account II pays 12% for the 1st year, 10% for year 2, 8% for year 3, 6% for year 4, and 4% for year 5, all with annual compounding. Account III pays interest at the rate of 7.96294% per year for all 5 years. Based on the available balance at the end of year 5, which alternative is Charlie’s best choice?
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