Question

In Year​ 0, you deposit​ $4,000 into an account with an interest rate of​ 4%. Three years​ later, the interest rate increases to​ 6%. Four years after​ that, the interest rate drops to​ 5%. You plan to withdraw all the money at the end of Year 15.

a. At the end of Year​ 2, how much money is in the​ account?

b. At the end of Year​ 7, how much money is in the​ account?

c. At the end of Year​ 15, how much money is in the​ account?

Answer 1

Answers:

Given, at Y=0, Cash deposited=$4000, i=4% (during 0-3 years), 6% (during 4-7 years) and 5% (during 8-15 years)

a) At the end of Year​ 2, Total money in the​ account=$4000*(F/P, 4%, 2)=$4000*1.0816=$4326.4

b) At the end of Year​ 7, Total money in the​ account=$4000*(F/P, 4%, 3)*(F/P, 6%, 4)

                                                                                    =$4499.46*1.26247

                                                                                    =$5680.46

c) At the end of Year​ 15, Total money in the​ account=$4000*(F/P, 4%, 3)*(F/P, 6%, 4)*(F/P, 5%, 8)

                                                                                    =$5680.46*1.47745

                                                                                    =$8392.63