Question

Your just deposited $2500 in a bank account that pays 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, will you have more than $17,500 in the account three years (12 quarters) from now?

Answer 1

Answer:

Total FV= $16,035.87

Explanation:

Giving the following information:

Deposit 1:

Investment= $2,500

Number of periods= 4*3= 12

Deposit 2:

Investment= $5,000

Number of periods= 4*2= 8

Deposit 3:

Investment= $7,500

Number of periods= 4*1= 4

Interest rate= 4% compoundes quarterly

Real interest rate= 0.04/4= 0.01

To determine the future value, we need to use the following formula on each deposit:

FV= PV*(1+i)^n

FV1= 2,500*(1.01^12)= $2,817.06

FV2= 5,000*(1.01^8)= $5,414.28

FV3= 7,500*(1.01^4)= $7,804.53

Total FV= $16,035.87