Question

An investment of $13,000 was growing at 4.5% compounded quarterly.

a. Calculate the accumulated value of this investment at the end of year 1.

Round to the nearest cent

b. If the interest rate changed to 5% compounded monthly at the end of year 1, calculate the accumulated value of this investment at the end of year 5.

Round to the nearest cent

c. Calculate the amount of interest earned from this investment during the 5-year period.

Answer 1

a.We use the formula:  
A=P(1+r/4)^4n
where   
A=future value
P=present value  
r=rate of interest
n=time period.   

A=13000*(1+0.045/4)^(4*1)

=13000*1.04576509

=$13594.95(Approx)

b.We use the formula:  
A=P(1+r/12)^12n
where   
A=future value
P=present value  
r=rate of interest
n=time period.   

A=13594.95*(1+0.05/12)^(12*4)

=13594.95*1.22089536

=$16598.01(Approx)

c.Interest=A-P

=16598.01-13000

=$3598.01(Approx)