Bank a Offers 12% Interest, Compounded Yearly, and Bank B

question 162

Short Answer

Bank A offers 12% interest, compounded yearly, and Bank B offers 11.1% interest, compounded continuously. Which bank should you choose if you have $1000 to invest for 10 years?

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Definitions:

Contribution Margin

The amount by which a product's selling price exceeds its total variable costs, used to cover fixed costs and contribute to net profits.

Variable Expense Ratio

A financial metric that represents the proportion of variable expenses to sales revenue, indicating how much variable costs change in response to sales activity.

Break-even Point

The level of production or sales at which total costs equal total revenue, resulting in no net loss or gain.

Degree of Operating Leverage

A measure indicating how much sales revenue will translate into changes in operating income due to the proportion of fixed and variable costs.