Question

Adriana invested $36,800 in a mutual fund at 4.3% compounded annually. After 2 years, the interest rate was changed to 6.2% compounded monthly A) how much was the value of the fund 5 years after the rate change? B) how much was the total compound interest earned during the whole term?

Answer 1

The first inversion was 36800 at 4.3% compounded anually. So it means that after two years she will have

$FV=36800(1+\frac{0.043}{1})^{1(2)}=36800(1+0.043)²\approx40032.84$

So, after two years she got $40032.84, now as the interest rate changed, to get the future value after 5 years we proceed as follows

$FV=40032.84(1+\frac{0.062}{12})^{12(5)}=40032.84(1+\frac{0.062}{12})^{60}=40032.84(1.00516667)^{60}\approx54538.247$

(A) The value of the fund after the change will be $54538.247

Now to find the compound interest earned we get the following

$FV-P=54538.247-36800=17738$

(B) The total compound interest earned was $17738