Consider the two savings plans below. Compare the balances in each plan after 14 years. Which person deposited more money in the plan? Which of the two investment strategies is better? Yolanda deposits $100 per month in an account with an APR of 5%, while Zach deposits $1200 at the end of each year in an account with an APR of 5%.

Step-by-step explanation:

It is not specified the compounding period, which in general is a month these days.  So we will assume money is compounded each month, otherwise there is no point depositing monthly.

1. Yolanda:

APR=5% is equivalent to

Monthly interest = 5%/12 = 5/12% = 5/1200 = 1/240 = i

Monthly deposit = 100 = A

Future value after 14 years = 14*12 months = 168 months = n

FV1 =  A((1+i)^n-1)/i

=100*((1+1/240)^168-1)/(1/240)

= $24259.83

2. Zach

He deposits 1200 at the end of the year.  The last payment does not benefit from interest.

Since it is a yearly payment, each amount earns interest over a year, giving an annual interest of

(1+i)^12 -1 = 1.051161897881733 -1 =0.051161897881733 = j

Thus for 13 annual payments with annual interest j gives a compounded amount after 14 years, plus the last payment which does not earn interest

FV2 = A((1+j)^n-1)/j

= 1200((1.051161897881733)^13-1)/(0.051161897881733)+1200

= 22613.34

Summary

Total investments:

Yolanda = 12*100*14 = 16800

Zach = 1200 * 14 = 16800

So both investors have invested $16800 over the 14 year period.

Since Yolanda achieves a higher future value after 14 years ($24259.83) over that of Zach ($22613.34), financially Yolanda has a better strategy.

Note:

If zach had invested annually at the beginning of the year, he would have obtained:

A((1+j)^n-1)/j

= 1200((1.051161897881733)^14-1)/(0.051161897881733)

= 24908.88

which is superior over Yolanda's return.

17.08

correct me if i am wrong.