On October 1, 2009, you deposited $5,000 into an account that pays 4.5% interest compounded quarterly. On what date will the account be worth $6,200? Assume that simple interest is allowed for a fraction of a period and give answer to the nearest day. Use a 360-day year.
the interest rate is 7.4% compounded quarterly. So
Effective annual rate = [(1 + 4.50% / 4) ^ 4] - 1
= 1.0458 - 1
= 4.58%
Effective annual rate is 4.58%.
Deposit amount = $5,000
Future value = $6,200
Interest earned = $6,200 - $5,000
= $1,200.
Total Interest payment is $1,200.
Since, simple interest is paid for part of a period, so number of days it will take is calculated in excel and screen shot provided below:
$1,200 = ($5,000 × 4.58% × Tenure / 360)
$1,200 / ($5,000 × 4.58%) = Tenure / 360
Tenure = 5.244 × 360
= 1,888 days
Date = October 1, 2009 + 1,880 days
= December 2, 2014.
On december 2, 2014 the account will be worth $6,200.
Get Answers For Free
Most questions answered within 1 hours.