Question

John invested $3000 that earns interest at 4% p.a. compounded monthly. Two years later, the interest rate is changed to 4.50% compounded quarterly. Determine the accumulated value of the investment two years after the change.

Answer 1

The Accumulated value of investment two years after the change is $3280.8

Explanation:

Given as :

Investment principal = $3000

The interest rate compounded monthly = 4%

The time period = 2 years

From compounded method for monthly

Amount = Principal ×
`(1+(Rate)/(12* 100))^(12* Time)`

Or, Amount = $3000 ×
`(1+(4)/(12* 100))^(12* 2)`

Or, Amount = $3000 ×
`(1.0033)^(24)`

∴ Amount = $3246.8

Now The interest rate change to 4.50% for compounded quarterly

Amount = Principal ×
`(1+(Rate)/(4* 100))^(4* Time)`

Or, Amount = $3000 ×
`(1+(4.50)/(4* 100))^(4* 2)`

Or, Amount = $3000 ×
`(1.01125)^(8)`

∴ Amount = $3280.8

Hence The Accumulated value of investment two years after the change is $3280.8 Answer