You want to invest $6,500 at your local bank for 18 years. The banker gives you two
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Question:
Option 1: You can invest in a special account that pays you 10% interest each year. However, the interest in this account will not compound. Instead, each year the interest payment is put into a special account that collects no further interest and cannot be reinvested anywhere until the end of the 18 years.
Option 2: You can invest in a regular bank account that pays you 5.95% interest each year with compounding interest. That is, each year the interest you earn gets deposited in your bank account and earns interest until the end of the 18 years. Which option should you select and why?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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