Question

Make payments of $125 at the end of every quarter for 12 months to an account paying 12% compounded quarterly. Then put the money earned into an account paying 8% compounded semi-annually and begin making semi-annual payments of $300 for 10 more years.

a) What is the future value of the account after 12 months?
b) What is the future value after 10 more years?
c) What is the total amount of payments made over the 10-year period?

Answer 1

The future value of the account after 12 months is $140.69.

Step-by-step explanation:

To calculate the future value of the account after 12 months, we need to use the compound interest formula:

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

Where:

A is the future value,

P is the principal amount ($125),

r is the annual interest rate (12% or 0.12),

n is the number of times the interest is compounded per year (4 for quarterly),

t is the number of years (1 year).

Substituting the given values into the formula:

A = 125(1 + 0.12/4)^(4*1)

Simplifying the equation:

A = 125(1.03)^4

A = 125(1.1255)

A = $140.69

So, the future value of the account after 12 months is $140.69.