Answer: 1517.54
Explanation:
So we can divide solving this question into two parts: the 2% compound interest and the 5% compound interest.
We know that the compound interest equations is A = P(1+r/n)^nt where:
A is final amount
P is principal (initial) amount
r is interest rate
n is number times interest compounded
t is number of time periods
Given this, in the 2% compound we know:
A = ?
P = 1200
r = 2%
n = 1 (because it didn't say how many times compounded so we assume 1)
t = 2
This becomes:
A = 1200 (1 + (0.02/1))^ 1 * 2
A = 1248.48
Because we switching to 5% from 2%, we can assume that the final amount from the 2% will be the initial amount in the 5%. Thus:
A = ?
P = 1248.48
r = 5%
n = 1
t = 4 (because there were 6 years in total and we used 2 years for 2%)
This becomes:
A = 1248.48 (1 + (0.05/1))^ 1 * 4
A = 1517.54