You have $2,000 in an account which pays 2.9% compounded annually. How many additional dollars of interest would you earn over 4 years if you moved the money to an account earning 4.4% compounded quarterly?

Instructions are listed below.

Explanation:

Giving the following information:

You have $2,000 in an account which pays 2.9% compounded annually.

Second option:

An account earning 4.4% compounded quarterly.

Number of years = 4 years

To compare, we need to use the final value formula:

FV = PV * (1+i) ^n

The option with greater final value is the most profitable.

Option 1:

PV = 2,000

i = 0.029

n = 4

FV = 2,000 * (1.029) ^4 = $2,242.30

Option 2:

PV = 2,000

i = 0.044/4 = 0.011

n = 4*4 = 16

FV = 2,000 * (1.011^16) = $2,328.59

Option 2 is the most profitable.