Question

Suppose that you have a money market certificate earning an annual rate of interest, which varies over time as follows: - Yeark 1 7% 2 5% 3 4% 4 4% 5 6% If you invest $9,000 in this certificate at the beginning of year one and do not add or withdraw any money for five years, what is the value of the certificate at the end of the fifth year? The value of the certificate at the end of the third year is $ . (Round to the nearest dollar.) The value of the certificate at the end of the fifth year ound to the nearest dollar.)

Answer 1

The value of the certificate at the end of the third year = $ 10,516

Calculation : -

Value of the certificate at the end of 1st year = $ 9000 $\times$ (1 + 0.07) ¹ = $ 9630

Value of the certificate at the end of 2nd year = $ 9630 $\times$ ( 1 + 0.05) ¹ = $ 10,111.5

Value of the certificate at the end of 3rd year = $ 10,111.5 $\times$ ( 1 + 0.04)¹ = $ 10,515.96 $\approx$ $ 10,516

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The value of the certificate at the end of the fifth year = $ 11,593

Calculation : -

Value of the certificate at end of 4th year = $ 10,515.96  $\times$ ( 1 + 0.04)¹

Value of the certificate at end of 4th year = $ 10,936.5984

Value of the certificate at end of 5th year = $ 10,936.5984  $\times$ ( 1 + 0.06)¹

Value of the certificate at end of 5th year = $ 11,592.7943 $\approx$ $ 11,593