T-Mobile LTE * 51% . 11:39 AM ezto.mheducation.com Question 15 (of 25) 2.00 poin

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T-Mobile LTE * 51% . 11:39 AM ezto.mheducation.com Question 15 (of 25) 2.00 points Melvin Indecision has difficulty deciding whether to put his savings in Mystic Bank or Four Rivers Bank Mystic offers 12% interest compounded semiannually. Four Rivers offers 7% interest compounded quarterly. Melvin has $10,900 to invest He expects to withdraw the money at the end of 6 years Calculate the interest earned at the end of Melvin's investment period at each bank. Identify which bank gives him the better deal? (Do not round intermediate calculations. Round your answer to the nearest cent.) Better deal (Click to select) Interest References eBook & Resources Worksheet Difficulty: Intermediate Leaming Objective: 19-01 (2) Calculat amount and interest manualy, using a and with a financial calculator Check my work

Explanation / Answer

In order to decide which bank is best, we need to first calculate the future value that would be generated in each of the account. According to basic time value of money function, FV = PV * (1 + r)n

PV = $10,000, n = 6 years

Now, lets take Mystic Bank first.

r = 12% (annual) --> 6% semiannual, n = 6 years --> 12 semi-annual periods

FV = 10900 * (1 + 0.06)12

FV = $21932.94

Now, lets take Four Rivers Bank.

r = 7% (annual) --> 1.75% quarterly, n = 6 years --> 24 quarterly periods

FV = 10900 * (1 + 0.0175)24

FV = $16,529.23

Hence Mystic bank offers a better deal.

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