Christine has been saving up for a few years and is now considering investing her savings. She has managed to save up 25,000 euros. She is not interested in investing in the stock market, so she is looking for a high interest account to keep down the risk. She has now spoken to two different banks and has received the following offers:

1. Bank A is willing to give her an account with 8% simple interest annually for 10 years

2. Bank B is only willing to give her 7% interest, however compounded annually also for 10

years

Answer the following questions. Make sure to show all steps of your calculations

1. Assuming the deposit is made in year 0 and the first interest payment is made at the end of year 1, which option should Christine choose to maximize her savings?

2. After considering her situation, Christine is thinking that she might need to take out her money before the 10-year period is up in case she needs to buy a home. If she believes she might need the money at the end of year 4, is the best option still the same as in question 1?

3. In your own words, explain why the results are as they are