Question

Aaron kept $12 000 in a bank account with an annual interest rate of 4%. After exactly 2 years, the bank chose Aaron as the winner for a prize money worth $5000. Aaron decided to invest all his savings and the prize money into a Trust Fund which offers a dividend of 4.5% per annum. When ( which year ) will all his investment value exceed $20 000?

Answer 1

Initial amount P = $12000

Interest after 2 years I = 4%*2 = 8%

Investment into Trust fund:

• $12000 + $5000 + 0.08*$12000 = $17960

Interest amount to exceed $20000:

• $20000 - $17960 = $2040

Time required to get $2040:

• 17960*0.045x = 2040
• 808.2x = 2040
• x = 2040/808.2
• x = 2.52 years

The investment will exceed $20000 in the second half of the third year