Mira has saved $25,000 over the years and she has the option of investing it in either of the two investment plans. Investment A offers 12 percent interest compounded monthly, whereas Investment B pays 13 percent interest compounded semiannually. The difference between the future values of the two investments if Mira's investment horizon is seven years is closest to: The second is 60,371.86 the first is 57,668.07

(A) $4,204.52

(B) $3,577.87

(C) $1,152.34

(D) $2,703.79

(E) $3,250.22

The correct answer is D.

Explanation:

Giving the following information:

Mira has saved $25,000 over the years and she has the option of investing it in either of the two investment plans. Investment A offers 12 percent interest compounded monthly, whereas Investment B pays 13 percent interest compounded semiannually.

Investment A:

PV = 25,000

n = 7*12 = 84

i=1% monthly

FV = PV * (1+i) ^n

FV = 25,000*1.01^84 = $57,668.07

Investment B:

PV = 25,000

n = 14

i = 6.5% semianually

FV = 25,000*1.065^14 = $60,371.86

The difference is $2,703.79