Question

you made an investment of 10,000 in a savings account 8 years ago. this account paid 4% for the first 4 years and 5% for the next 4 years. How much is this investment worth now

3. You made an investment of $10,000 in a savings account 8 years ago. This account paid 4% for the first 4 years and 5% for the next 4 years. How much is this investment worth now? (12 Points)

Answer 1

Future Value = Present Value*((1+r)^t)
where r is the interest rate that is 4% for the first four years and t is the time period in years
Present value = 10000
The future value of 10000 at the end of the first four years is 10000*((1.04)^4)
Future value at the end of first four years = 10000*((1.04)^4)
Future value at the end of first four years = 11698.59
The future value at the end of the first four years will be the present value at
the beginning of the 5th year.
Calculate the future value of $11698.59 from the beginning of period 5 to the end of
period 8.
Future value at the end of the last four years = 11698.59*((1.05)^4)
Future value at the end of the last four years = 11698.59*((1.05)^4)
Future value at the end of the last four years = 11698.59*(1.215506)
Future value at the end of the last four years = 14219.71
The investment is worth $14219.71 now.