Question

At the end of every 3 months, Mayan deposits $100 into an account that pays 4% compounded quarterly. After 2 years, she puts the accumulated amount into a certificate of deposit paying 7.5% compounded monthly for 1 year. When this certificate matures, how much will Mayan have accumulated? How much interest was earned overall?

Answer 1

First let us find future value of money after 2 years

Interest rate = 4%/4 = 1%

N = no of period = 2 years x 4 = 8

PV = present value = 100$

Future value = PV(1+r)^n

=100(1+1%)^8

=100(1.01)^8

=100(1.0829)

$108.29

now let us calculate FV of above amount for 1 year

r = rate = 7.5%/12 = 0.6250%

n = number of compounding period = 1*12 = 12

FV = PV(1+0.6250%)^12

=108.29(1.00625)^12

=108.29(1.07763)

=$ 116.6968

Thus when certificates matures mayan will have 116.6968$

Total interest earned = 116.6968-100 = 16.6968$