Question

A man lends $2,500 at 8 percent per year simple interest for 4 years. At the end of this time, he invests the entire amount (principal plus interest) at 6 percent compounded annually for 9 years. How much money will he have at the end of the 13-year period?

Answer 1

Answer:

$5,575          

Explanation:

For computing the future value at the end of the 13 year period, we first find out the amount through simple interest formula which is shown below:

Simple interest = Principal × rate of interest × time period

                         = $2,500 × 8% × 4 years

                         = $800

Now the amount would be

= Principal amount + Simple interest

= $2,500 + $800

= $3,300

Now the future value would be

= Amount × (1 + interest rate)^number of years

= $3,300 × (1 + 0.06)^9

= $5,575