Question

Patrick macle an investment of 8,000 in a savings account 10 years ago. This account paid interest of 4% for the first 5 years and 6% for the remaining 5 years. How much is the investment worth now?

Answer 1

Investment amount = $8000

Interest rate for first 5 years = 4%

Interest rate for last 5 years = 6%

As it is not given whether the interest is compounded or simple, I am calculating both.

Formula of simple interest = P + [(P *R * N) / 100]

Formula of compound interest = P [1 + (R / 100)]^N

With simple interest 8000 becomes (8000 * 0.04 * 5) + 8000 = 9600 after 5 years. After 5 more years it would become (9600 * 0.06 * 5) + 9600 = 12480. Thus with simple interest 8000 invested would become 12480 after 10 years.

With compound interest 8000 becomes 8000 [1 + 0.04]⁵ = 9733.22 after 5 years. After 5 more years it would become 9733.22 [1 + 0.06]⁵ = 13025.24   Thus with compound interest 8000 invested would become 13025.24 after 10 years.