Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![Zulfa has money to invest in one of two accounts.
Account 1 requires an $800 investment for 1 year. It earns 4.8% interest compounded daily.
Account 2 requires an $810 investment for 2 years. It earns 2.5% interest compounded quarterly. It also has a one-time administrative fee of $10.
Zulfa's goal is to invest in the account with the best return on investment with no limit on time.
Which account is better for Zulfa, and why?
Select the answer that is completely correct.
Account 2 is better because its ROI is 5.1%, approximately 0.2% greater than the ROI for Account 1.
Account 2 is better because the profit is $41.40, about $2.07 more than the profit for Account 1.
Either account is a good investment because both earn about $40 in interest.
Account 1 is better because its ROI is 4.9%, approximately 1% greater than the ROI for Account 2.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F443b3b05-22f6-43f8-a61e-1dc6640972a4%2F4a3fbcf7-af81-4595-8671-6fda42b9da2f%2Fbr2qpdq_processed.png&w=3840&q=75)
Transcribed Image Text:Zulfa has money to invest in one of two accounts.
Account 1 requires an $800 investment for 1 year. It earns 4.8% interest compounded daily.
Account 2 requires an $810 investment for 2 years. It earns 2.5% interest compounded quarterly. It also has a one-time administrative fee of $10.
Zulfa's goal is to invest in the account with the best return on investment with no limit on time.
Which account is better for Zulfa, and why?
Select the answer that is completely correct.
Account 2 is better because its ROI is 5.1%, approximately 0.2% greater than the ROI for Account 1.
Account 2 is better because the profit is $41.40, about $2.07 more than the profit for Account 1.
Either account is a good investment because both earn about $40 in interest.
Account 1 is better because its ROI is 4.9%, approximately 1% greater than the ROI for Account 2.
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