Question

A R1 000 000 trust fund was set up and to be used by an 8-year old nephew when he goes to college. In 8 years, how much will the fund be if the investment rate is 7.5% compounded quarterly?

Answer 1

The amount earned on the principal amount P

P invested for t

t years at the rate of r

r compounded quarterly is:

$A=P(1+\frac{r}{4})^{4t}$

Now, we are given:

$P=1000000\\t=8\\r=7.5\%=\frac{7.5}{100}=0.075$

Putting the values of $P=1000000 , t=8, r=0.075$

$A=P(1+\frac{r}{4})^{4t}$

we get:

$=1000000(1+\frac{0.075}{4})^{4×8}\\=1000000(1.01875)^{32}\\=1812023.793$

Hence, the investment will be Php 1812023.793 at the end of 8 years.