Question

Compounding with different interest rates a deposit of $750 earns interest rates of 10.5 percent in the first year and 7.5 percent in the second year. what would be the second year future value? $890.91 $885.00 $829.43 $1,635.00

Answer 1

1. You have:

FV=PV(1+i)(1+j)

FV is the future value.
PV is the present value (PV=$750).
i=10.5%=0.105
j=7.5%=0.075

2. Therefore, you only have to substitute these values into the formula FV=PV(1+i)(1+j) to obtain the Future value:

FV=PV(1+i)(1+j)
FV=$750(1+0.105)(1+0.075)
FV=$750(1.105)(1.075)

3. Then, the result is:

FV=$890.91

What would be the second year future value?

The answer is: $890.91