Question
Dmitri is willing to invest $20,000.00 for three years, and is an economically rational investor. He has identified three investment alternatives (X, Y, and Z)
Dmitri is willing to invest $20,000.00 for three years, and is an economically rational investor. He has identified three investment alternatives (X, Y, and Z) that vary in their method of calculating interest and in the annual interest rate offered. Since he can only make one investment during the three-year investment period, complete the following table and indicate whether Dmitri should invest in each of the investments.
Note: When calculating each investments future value, assume that all interest is compounded annually. The final value should be rounded to the nearest whole dollar.
Investment | Interest rate and Method | Expected future value | Make this investment? |
---|---|---|---|
X | 11% compound interest | $27,353 | Yes |
Y | 13% compound interest | $28,858 | No |
Z | 13% simple interest | $27,800 | Yes |
This is the answer I came up with. Could you rework the problem and explain the correct answer. I want to learn the material (step by step if you don't mind).
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