Answer to Question #217169 in Financial Math for shoaib

Question

) Mohit deposited Rs. 1,00,000 in a bank for 3 years offering interest rate of 6% compounded half- yearly during first year, at the rate of 12% compounded quarterly during second year and at 10% compounded continuously during third year. Find his balance after 3 years.

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.

The formula for calculating continuously compound interest

$$B=A•e^{Pn}$$

where B is the future value;

A - current value;

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

e - is the mathematical constant approximated as 2.7183;

n is the number of settlement periods.

1) the first year

A=106090, P=3, n=2

$$B=100000(1+0.03)^2=106090.$$

2) the second year

A=100000, P=3, n=4

$$B=106090(1+0.03)^4=119405.23$$

3) the third year

A=119405.23,P=0.1,n=1

$$B=119405.23•e^{0.1}=131963.188.$$

Answer. 131963.188