Question

You have deposited $1,000 with an interest rate of 3% every 6 months where the interest is computed every 6 months How much you will have after 5 years?

Two years later after the initial deposit of the money, you deposited additional $1,000 with an interest rate of 2% every 6 months (applies only to this deposit). How much will you have after 5 years?

Answer 1

Ans: in first case: Principal (P) = $1000 rate of interest (r) = 3% every 6 months

Total no of periods (n) = 5 * 2 = 10 periods

Amount at the end of 5 years = P(1+r)ⁿ

= 1000(1+0.03)¹⁰

= $1343.91

After two years we deposited $1000 which means $1000 is invested for 3 years. So principal = $1000

rate of interest = 2% Total no of periods = 2*3 = 6 periods

Amount at the end of 3 years = P(1+r)ⁿ

= 1000 (1+0.02)⁶

= $1126.16

Thus total amount at the end of 5 years isthe sumof $1000 invested for 5 years and additional $1000 invested for 3 years which is equal to $1343.91 + $1126.16 = $2470.07