Question

You Save Bank has a unique account. If you deposit $9,000 today, the bank will pay you an annual interest rate of 3 percent for 6 years, 3.6 percent for 5 years, and 4.3 percent for 9 years. How much will you have in your account in 20 years?

$17,632.03

$18,733.69

$15,830.19

$14,972.87

$16,255.00

Answer 1

We will apply the simple time value of money function here: FV = PV * (1 + r)ⁿ

However, we need to apply this model 3 times - first for 6 years, then for 5 years and last for 9 years.

Now, for the first 6 years,

FV = 9000 * (1 + 3%)⁶

FV = 9000 * 1.1941

FV = $10,746.47 --- After year 6

Now, this amount would be invested for 5 years at 3.6%

FV = 10,746.47 * (1 + 3.6%)⁵

FV = 10,746.47 * 1.1934

FV = $12,825.21 ---> This is the value accumulated at end of year 11

For next 9 years, this amount would be invested in 4.3%

FV = 12,825.21 * (1 + 4.3%)⁹

FV = 12,825.21 * 1.4607

FV = $18,733.69 ---> Total amount accumulated at end of year 20.

answered by: anonymous