1. ## Compound Interest

a woman is offered a lumpsum of $100000 to invest now or$55000 to invest at the end of the year and another $55000 to invest at the end of the following year.If all the investments are assumed to earn 7% per annum, which should she choose if she intends to withdraw money after 2years? 2. Hello, Rose Wanjohi! Are you waiting for some magic formula? Do the math! A woman is offered (a) a lump sum of$100,000 to invest now
or (b) $55,000 to invest at the end of the year and another$55,000 to invest at the end of the following year.

If both the investments are assumed to earn 7% per annum,
which should she choose if she intends to withdraw money after 2 years?
Deal (a) is just compound interest.

At the end of two years, she will have: . $\100,\!000(1.07)^2 \:=\:\114,490$

Deal (b) is rather lame.

During the first year, she has no money invested.
At the end of the first year, she invests $55,000. That earns interest during the second year. . . It will be worth: . $\55,\!000(1.07) \:=\:\58,850$ Then she invests another$55,000.

So at the end of two years, she will have: . $\58,\!850 + 50,\!000 \:=\:\113,850$

Obviiusly, deal (a) is better.