Answer to Question #306612 in Financial Math for Ndi

Question

Mapuleng deposit 1500 at the end of every month into an account that earns 12.5% interest per year,compounded monthly. After two years, she stops making this monthly contributions because the interest rate changes to 15% per year compounded every two months. if no withdrawals or deposits are made for four years the balance in the account will be

Answer 1

Solution

Given that

Number of years     $t=2$

Number of times, the interest was compounded per year      $n = 12$ (monthly compounded)

Interest rate $r = 12.5\%$ (annually)

Interest rate $\frac {r}{12} =\frac{12.5\%}{12}= 1.0416\%$ (monthly)

Monthly deposit     $P = 1500$

For two years, the number of times, the interest was compounded = 24 

After two years, the interest rate is $r=15\%$

Using excel, the future value after four years is calculated as