Question

21. Suppose you save $8,000 in a saving account for two years. For the first year the interest rate is 9.9% compounded monthly, while during the second year the interest rate is 11.6% compounded monthly. What is the balance in your savings account after the second year?

(a) $9,743.78 (b) $9,909.35 (c) $9,811.87 (d) $17,807.91

Answer 1

(b) $9,909.35

Step-1:Future value at the end of year 1
A	=	P*(1+i)^n		Where,
	=	8000*(1+0.00825)^12		A	=	Future Value	=	?
	=	$ 8,828.94		P	=	Present Value	=	$ 8,000.00
				i	=	Interest rate	=	9.9%/12	=	0.00825
				n	=	Time	=	1*12	=	12
Step-2:Future value at the end of year 2
A	=	P*(1+i)^n		Where,
	=	8828.94*(1+0.0096667)^12		A	=	Future Value	=	?
	=	$ 9,909.35		P	=	Present Value	=	$ 8,828.94
				i	=	Interest rate	=	11.6%/12	=	0.0096667
				n	=	Time	=	1*12	=	12