Question

Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract?

A. $506.00
B. $726.24
C. $900.00
D. $920.24
E. $926.24

Answer 1

E. $926.24

Explanation:

The total amount of interest paid is shown below:

1. For 6 months, the interest would be

= Invested amount × interest rate

= $10,000 × 2%

= $200

2. For 12 months, the interest would be

= (Invested amount + interest paid for 6 months) × interest rate

= ($10,000 + $200) × 3%

= $10,200 × 3%

= $306

3. For 18 months, the interest would be

= (Invested amount + interest paid for 6 months + interest paid for 12 months ) × interest rate

= ($10,000 + $200 + $306) × 4%

= $420

Now the total interest would be

= $200 + $306 + $420.24

= $926.24