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9 December, 07:09

An investor considers two investment bonds one $8000 bond offer 6% interest compounded annually for 10 years another 8000 bond offer 6% interest compounded monthly for 10 years how much more interest with the investor earn from the bond with monthly compounding

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  1. 9 December, 08:32
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    Answer:the investor will make $185 more

    Step-by-step explanation:

    The formula for compound interest is

    A = P (1+r/n) ^nt

    A = total amount in the account at the end of t years.

    Considering the bond that is being compounded annually,

    The initial amount is $8000, so

    P = 8000

    It was compounded annually. This means that it was compounded once in a year. So

    n = 1

    The rate at which the principal was compounded is 6%. So

    r = 6/100 = 0.06

    It was compounded for 10 years. So

    t = 10 years

    Therefore

    A = 8000 (1+0.06/1) ^1*10

    A = 8000 (1.06) ^10 = $14327

    Considering the bond that is being compounded quarterly,

    P = 8000

    It was compounded quarterly. This means that it was compounded 4 times in a year. So

    n = 4

    The rate at which the principal was compounded is 6%. So

    r = 6/100 = 0.06

    It was compounded for 10 years. So

    t = 10 years

    Therefore

    A = 8000 (1+0.06/4) ^4*10

    A = 8000 (1.015) ^40 = $14512

    The difference between both investments is 14512 - 14327 = $185
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