Which Investment Option is the Best for You?
Based on the data provided:
Which investment option would be the most profitable if the money is invested for 3 years?
The best investment option would be:
Option (c) with an interest rate of 8.1% compounded semi-annually.
When considering the future value of each investment option after 3 years, it is important to analyze the data provided. Let's break down the future value calculations for each option:
Future Value Calculations:
a) Option (a): Future Value = P(1 + r/n)^(nt) = 5000(1 + 0.08/12)^(12*3) ≈ $6,563.35
b) Option (b): Future Value = P(1 + r/n)^(nt) = 5000(1 + 0.082/1)^(1*3) ≈ $6,641.90
c) Option (c): Future Value = P(1 + r/n)^(nt) = 5000(1 + 0.081/2)^(2*3) ≈ $6,621.31
Comparing the future values of the three investment options:
- Option (a) yields approximately $6,563.35.
- Option (b) yields approximately $6,641.90.
- Option (c) yields approximately $6,621.31.
Based on the calculated future values, option (b) has the highest future value at approximately $6,641.90. However, the difference between option (b) and option (c) is relatively small.
While future value is crucial, other factors such as compounding frequency and ease of investment should also be taken into account. Option (c) offers an interest rate of 8.1% compounded semi-annually, close to option (b) but with less frequent compounding.
Considering the slightly lower interest rate and less frequent compounding, option (c) strikes a balance between future value and ease of investment. Therefore, option (c) with an interest rate of 8.1% compounded semi-annually emerges as the best investment option for a 3-year investment period.