Question

A deposit of $4,000 earns interest at 12% compounded semiannually for the first two years, and then 9% compounded monthly thereafter. How much will be in the account five years after the deposit was made? ____________

 

Answer 1

Solution.

The formula for calculating compound interest:

$$B=A(1+\frac{p}{100})^n,$$

where $B$ is the future value;

$A$ - current value;

$p$ - interest rate for the settlement period (day, month, year, ...);

$n$ is the number of settlement periods.

Сalculate the amount of the deposit in 2 years:

$B=4000(1+\frac{12}{100})^4=\newline 4000*1.12^4=6294.08$$

Сalculate the amount of the deposit in the next 3 years:

$B=6294.08(1+\frac{9}{100})^{36}=\newline 6294.08*1.09^{36}=140050.96$$

Answer. $140050.96$$