Question 1: Muffin Megabucks is considering two different savings pans. The first plan would have her deposit $500 every six months, and she would receive interest at a 7 percent annual rate, compounding semiannually. Under the second plan she would deposit $1,000 every year with a rate of interest of 7.5 percent, compounding annually. The initial deposit with plan 1 would be made six months from now and, with plan 2, one year hence.
- What is the future value of the first plan at the end of 10 years?
- What is the future value of the second plan at the end of 10 years?
- Which plan should Muffin use, assuming that her only concern is with the value of her savings at the end of 10 years?