Question

An amount of ​$1000 was deposited in a bank at a rate of 6​% compounded quarterly for 5 years. The rate then increased to 10​% and was compounded quarterly for the next 5 years. If no money was​ withdrawn, what was the balance at the end of this​ time?

Answer 1

FV= $2,206.979

Explanation:

Step 1: Find FV at the end of first 5 years at 6% rate;

FV=PV(1+r)^t

since it's quarterly-compounded, r/4=6%/4 = 1.5% and t=5*4= 20 periods

FV= 1000 * (1.015)²⁰

FV=1000* 1.346855

FV=$1,346.855

Step 2: Find FV of $1346.855 for the next 5 years at 10% rate;

FV=PV(1+r)^t

since it's quarterly-compounded, r/4=10%/4 = 2.5% and t=5*4= 20 periods

FV= 1346.855 * (1.025)²⁰

FV=1346.855* 1.638616

FV=$2,206.979