Question

An investment of $ 18,000 is growing at 5% compunded quarterly

a) calculate the accumulated amount of this investment at the end of year 1 Round of the nearest cent

b) if the intrest rate changed to 3% compounded monthly of the year 1, calculated the accumulated amount of this investment at the end of year 2 round of the nearest cent

c) Calculate the total amount of interest earned from the investment during the 2 year- period round of the nearest cent.

Answer 1

$FV=PV(1+\frac{r}{n})^{n×t}$

compounded quarterly n =4,t=1

$=18000(1+\frac{0.05}{4})^{4×1}$

$=18000(1.0125)^4=\$18,917$

b)

compounded monthly n=12,t=2

$=18917(1+\frac{0.03}{12})^{12×2}$

$=18917(1.0025)^{24}=\$20,085$

c)interest earned

$I=PRT$

$=20085×0.03×2=\$1205.1$