Question

Suppose Jack invests $4,000 today at 4% p.a compounding quaterly for the first 2 years, then the interest rate changes to 12%p.a compounding monthly for the next 3 years. What is the value of the investment at the end of the 5 years? (round to the nearest dollar; don't use $ sign or commas)

Answer 1

Interest Rate for first 2 years = 4% p.a. compounding quarterly

Principal Amount = $4,000

Amount at the end of 2 years = 4,000(1+0.01)⁸

= $4,331.427

Interest Rate for the next 3 years = 12% p.a. compounding monthly

Amount at the end of 5 years = 4,331(1+0.01)³⁶

= $6,258.63 (approx.)

i.e. $6,259