Question

You get a gift of $1,000.  You decide that you want to invest all of the money in a savings account.  However, your bank has two different savings plans.  Determine the final amount in the account for each plan in 5 years.  Round your answers to two decimal places if needed. 

Plan A:  The bank gives you 4% interest rate and it is compounded every two months.  
 
Plan B:  The bank gives you a 10% interest rate and compounds the interest every 6 months.

Final Account balance for Plan A: $ 
 
Final Account balance for Plan B: $

Answer 1

Explanation:

write what you know

P = 1,000

n = 5 years

Plan 1

i = 0.04 / 2 months = (0.04 / 2 months) x (12 months / year) = 24%

write and solve

future value = p(1+i)^n = 1000(1+0.24)^5

plan 2

i = 0.10 / 6 months = (0.10 / 6 months) x (12 months / year) = 20%

write and solve

future value = p(1+i)^n = 1000(1+0.20)^5