Question

An investment with an initial deposit of $7,474 is growing at an interest rate of 3.91% compounded monthly. Round all answers to two decimal places where necessary.

1. Find the accumulated amount of the investment at the end of 3 years.

P/Y = C/Y =    N =    I/Y = %

PV = $   PMT = $   FV = $

2. At the end of the 3 years, the interest rate changes to 8.52% compounded semi-annually. Calculate the accumulated amount in this investment at the end of 7 years from the initial deposit of $7,474.

P/Y = C/Y =    N =    I/Y = %

PV = $   PMT = $   FV = $

3. Find the total amount of interest accumulated during the entire 7 years of the investment.

Total Interest = $ (enter a positive value)

Answer 1

1

Firstly we need to calculate the Effective annual rate of 3.91% compounded monthly:

EAR = ((1+(Nominal rate/Number of compounding periods)^ Number of compounding periods)  - 1

EAR= [(1+(3.91%/12)) ^12] - 1

EAR = 3.9808%

We will use BA 2 plus financial calculator to find the accumulated amount of the investment at the end of 3 years:

PV: $7,474

I/Y: 3.9808%

N: 3

PMT: 0

CMPT FV

Future value/accumulated at the end of 3 years = $8402.5781

2

Firstly we need to calculate the Effective annual rate of 8.52% compounded semi-annually

EAR = ((1+(Nominal rate/Number of compounding periods)^ Number of compounding periods)  - 1

EAR= [(1+(8.52%/2)) ^2] - 1

EAR = 8.7015%

We will use BA 2 plus financial calculator to find the accumulated amount of the investment at the end of 7 years but the accumulated value at the end of 3 years is $8402.5781 so our PV in this case is gonna be $8402.5781 and N is gonna be 4 (7-3):

PV: $8402.5781

I/Y: 8.7015%

N: 4

PMT: 0

CMPT FV

Future value/accumulated at the end of 7 years = $11,731.5314

3

Total Interest = accumulated amount of the investment at the end of 7 years - initial deposit

= $11,731.5314 - $7,474

= $4257.5314