Suppose There Is a New Kind of Savings Certificate That

Multiple Choice

Suppose there is a new kind of savings certificate that starts out paying 3.5% annual interest and increases the interest rate by 1% each additional year that the money is left on deposit.(Assume that interest is compounded continuously and that the interest rate increases continuously.) Assuming an initial deposit of $1500, which of the following investment choices is better?

A) Investing the money at a fixed interest rate of 5% for 4 years.
B) Investing the money in the new kind of savings certificate for 4 years.