1. When Gavin deposited $2000 into his savings account he was given the option of earning 9% compounded annually or 2.5% compounded quarterly. What advice would you give Gavin? Explain your reasoning.

a. Which option would you advice Gavin to take?

b. Explain your reasoning.

Hello there! So, the formula for compound interest is P (1 + r/n) ^nt. P = principal, r = rate, n = number of times compounded per year, and t = time in years.

a. Just by looking at the numbers, I would say that Gavin should take the first option of 9% compound interest annually.

b. I say this, because you're gonna earn a lot more. Just by solving the question for the amount in 5 years for each account, the first opinion will earn you $3,077.35, and the other option will only give you $2,265.42 in 5 years. Keep in mind that compounding quarterly means 4 times per year. With a low interest rate, it's no surprise that the first option would be a better choice.