You are given two investment options by your Bank. Option 1: you deposit $1 the first month, $2 the second month, $3 the third month...... and so on for 120 months or ten years. Option 2: you deposit $1 the first month, $1+5%, or $1.05 the second month, $1.05+5%, or $1.1025 the third month.....and so on for 120 months, or 10 years. You get 6% interest on your deposits compounded monthly. Which option is the better investment, and by how much at the end of 10 years. Thanks for any help.
There are specialized formulas used for these unusual type of investments, which I happened to have programmed into my computer. But, I will spare you the details because they get quite involved. However, if the answers I give are inaccurate, then you let me know and I will resolve it with whomever questions it.
1- The first investment yields a total future value of =$8,775.87 @ 6% compounded monthly.
2-The second investment yields a total future value of =$7,713.17 @ 6% compounded monthly.
3- The difference being =$8,775.87 - $7,713.17=$1,062.70.
So, obviously, the first investment is the better one. Good luck to you.
