Suppose carla has $12,000 to invest. which investment yields the greater return over 2 years: 9% compounded quarterly or 8.85% compounded monthly? a) the rate of 8.85% compounded monthly is better. b) the rate of 9% compounded quarterly is better. c) they are the same.

B) The rate of 9% compounded quarterly is better

The effective annual rate at 8.85% compounded monthly is ...

... (1 +0.0885/12)^12 -1 ≈ 9.218%

The effective annual rate at 9% compounded quarterly is ...

... (1 +0.09/4)^4 -1 ≈ 9.308% . . . . . . larger than 9.218%

The higher rate compounded less often is better.

The rates would be nearly equivalent (within $1 over 2 years) if the rate compounded monthly were about 8.93% instead of 8.85%

good luck on your studies! : )

david edward.