Question

You are investing AU10771 today in bank account which offers a fixed interest rate of 1.06%/quarter. You plan to withdraw AU10,000 from the bank account exactly at the end of five (5) years from today and keep the remaining amount in the same bank account for another five (5) years.

What will be the balance in the account after ten (10) years from today?

Answer 1

Balance in account after 5 years but before withdrawal

Future value	FV=	PV * (1+rs/m)^mN
Present value	PV=	10,771
Stated rate of interest	rs=	4.24%
Number of years	N=	5
Frequency of compounding per year	m=	4
Future value	FV=	10771 *(1+ 0.0424/4)^(5*4)
	FV=	13,299.70

After sebsequent five years future value is

Future value	FV=	PV * (1+rs/m)^mN
Present value	PV=	3,300
Stated rate of interest	rs=	4.24%
Number of years	N=	5
Frequency of compounding per year	m=	4
Future value	FV=	3299.7 *(1+ 0.0424/4)^(5*4)
	FV=	4,074.37

Interest rate per annum = 1.06% * 4 = 4.24%