Question

You save $8,500.00. You place 40% in a savings account earning a 4.2% APR compounded annually and the rest in a stock plan. The stock plan decreases 3% in the first year and increases 7.5% in the second year. What is the total gain at the end of the second year for both accounts combined?

Answer 1

$509.63

Explanation:

This is the correct answer for connexus

Answer 2

The total gain at the end of the second year for both accounts combined is $509.09.

Explanation:

Amount saved = $8500

40% of 8500 is saved in saving account;
`0.4*8500=3400`

Remainder amount in stock plan;
`8500-3400=5100`

Working for savings plan:

`A=p(1+(r)/(n))^(nt)`

Here, p = 3400 ; n = 1 , t = 2 , r = 0.042

Putting values in formula:

`A=3400(1+(0.042)/(1))^(2)`

`A=3400(1+0.042)^(2)`

A = $3691.60

We get a gain of
`3691.60-3400=291.60` dollars

Working for stock plan:

The stock plan decreases 3% in the first year and increases 7.5% in the second year.

`5100* 0.97=4947`

When increases;

`4947*1.075=5318.03` dollars

So, we get a gain of
`5318.03-5100=218.03` dollars

Therefore, we have a total gain of
`291.06+218.03=509.09` dollars.