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+(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+(0.062)/(12))^(12(5))=40032.84(1+(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