Question

A deposit of $500 earns 5 percent the first year, 6 percent the second year, and 7 percent the third year. What would be the third year value

Answer 1

Explanation:

To find the third year value of the deposit, we can use the formula for compound interest:

A = P(1 + r/n)^(nt)

where A is the amount of money after t years, P is the principal (the initial deposit), r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

For the first year, we have:

P = $500

r = 0.05

n = 1 (compounded annually)

t = 1

So, the amount after the first year is:

A1 = $500(1 + 0.05/1)^(1*1) = $525

For the second year, we have:

P = $525 (the amount after the first year)

r = 0.06

n = 1

t = 1

So, the amount after the second year is:

A2 = $525(1 + 0.06/1)^(1*1) = $556.50

For the third year, we have:

P = $556.50 (the amount after the second year)

r = 0.07

n = 1

t = 1

So, the amount after the third year is:

A3 = $556.50(1 + 0.07/1)^(1*1) = $594.64

Therefore, the third year value of the deposit is $594.64.