Question

Heather deposited $1,700 at her local credit union in a savings account at the rate of 9.8% paid as simple interest. She will earn interest once a year for the next 13 years. If she were to make no additional deposits or withdrawals, how much money would the credit union owe Heather in 13 years?

$3,865.80

$1,882.93

$266.60

$5,731.65

Now, assume that Heather’s credit union pays a compound interest rate of 9.8% compounded annually. All other things being equal, how much will Heather have in her account after 13 years?

$561.70

$1,866.60

$5,731.65

$3,865.80

Before deciding to deposit her money at the credit union, Heather checked the interest rates at her local bank as well. The bank was paying a nominal interest rate of 9.8% compounded quarterly. If Heather had deposited $1,700 at her local bank, how much would she have had in her account after 13 years?

$5,985.09

$644.03

$1,872.82

$266.60

Answer 1

1)	Future value (simple interest)
	A = P + P*N*R
	P = present value
	N = number of periods
	R = interest per period
	=$1700+ 1700*13*9.8%
	=1700+2165.8
	=$3865.80
2)	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	= $1700*( 1+0.098)^13
	=1700*3.37156
	= $5731.65
3)	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate =9.8%/4 =2.45%
	n= periods in number =13*4 =52
	= $1700*( 1+0.0245)^52
	=1700*3.52064
	= $5985.09