Question

4. Juan deposits of $1,000 in a savings account that pays 8% compounded annually. Exactly 2 years later he deposits $3,000; 2 years later he deposits $4,000; and 4 years later he withdraws all of the interest earned to date and transfers it to a fund that pays 10%compounded annually. How much money will be in each fund 4 years after the transfer?

Answer 1

In saving account

Deposit of $1000 will earn interest for 8 years.

Interest = $1000 x  (1.08⁸ -1) = $851

Deposit of $3000 will earn interest for 6 years.

Interest = $3000 x  (1.08⁶ -1) = $1761

Deposit of $4000 will earn interest for 4 years.

Interest = $4000 x  (1.08⁴ -1) = $1442

Total interest at the time of transfer = $851 + $1761 + $1442 = $4054

Now there is $8000 left in the savings account and $4054 is transferred to other fund.

After 4 years of transfer, money in each fund:

In savings account = $8000 x 1.08⁴ = $10884

In other fund = $4054 x 1.10⁴ = $5935

Therefore, after 4 years of transfer, there will be $10884 in savings account and $5935 in other fund.