Question

Donna Clark has $15,000 that she can deposit into a savings account for five years. Bank A compounds interest annually, Bank B twice a year, and Bank C quarterly. Each bank has a stated interest rate of 5 percent. What account balance would Donna have at the end of the fifth year if she left all the interest paid on the deposit in each bank? (Round answers to 2 decimal places, e.g. 52.75.)

		Bank A		Bank B		Bank C
Future Value

Answer 1

- Invested amount in Bank account by Donna = $15,000

calculating the Future Value at the end of year 5 under the following 3 banks:-

i).  Bank A has a stated interest rate of 5 percent compounds interest annually

Where,

r =Interest rate = 5%

n= no of years = 5

m = no of times compounding in a year = 1

Future Value = $15,000*1.27628156

Future Value = $19,144.22

Balance in bank A at the end of year 5 is $19,144.22

ii).  Bank B has a stated interest rate of 5 percent compounds interest semi-annually

Where,

r =Interest rate = 5%

n= no of years = 5

m = no of times compounding in a year = 2

Future Value = $15,000*1.2800845442

Future Value = $19,201.27

Balance in bank B at the end of year 5 is $19,201.27

iii).  Bank C has a stated interest rate of 5 percent compounds interest quarterly

Where,

r =Interest rate = 5%

n= no of years = 5

m = no of times compounding in a year = 4

Future Value = $15,000*1.28203723171

Future Value = $19,230.56

Balance in bank C at the end of year 5 is $19,230.56