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Find the value, in 2 years’ time, of $4000 invested at 5% compounded annually. In the
following 2 years, the interest rate is expected to rise to 8%. Find the final value of the
investment at the end of the 4-year period, and find the overall percentage increase. Give
your answers correct to 2 decimal places.

Find the value, in 2 years’ time, of $4000 invested at 5% compounded annually. In the
following 2 years, the interest rate is expected to rise to 8%. Find the final value of the
investment at the end of the 4-year period, and find the overall percentage increase. Give
your answers correct to 2 decimal places.

14. Find the value, in 2 years time, of $4000 invested at 5% compounded annually in the following 2 years, the interest rate

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Answer #1

Future value = present value*(1+r)^n

Where r = rate of interest

n = number of years

Value in 2 years time = 4000*(1+5%)^2

= 4410

Value in 4 years = 4410*(1+8%)^2

= $5143.82

Percentage increase:

If the interest rate is constant at 5% value in 4 years =

4000*(1.05)^4 = 4862.03

Value after4 years due to increase in interest rate=5143.82

% increase = (5143.82 - 4862.03) / 4862.03

= 5.80%

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