Question

In: Finance

You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate, compounded...

You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?

Group of answer choices

$18,563.53

$17,679.55

$16,035.88

$16,837.67

$15,234.08

Expert Solution

Future value of Deposit made today = Deposited amount * (1 + interest rate / compounding frequency)^{no of years *
compounding frequency}

Future value of Deposit made today = $2500 * (1 + (4% / 4))^{3 * 4}

Future value of Deposit made today = $2817.06

Future value of Deposit made 1 year from today = Deposited amount * (1 + interest rate / compounding frequency)^{no of
years * compounding frequency}

Future value of Deposit made 1 year from today = $5000 * (1 + (4% / 4))^{2 * 4}

Future value of Deposit made 1 year from today = $5414.28

Future value of Deposit made 2 year from today = Deposited amount * (1 + interest rate / compounding frequency)^{no of
years * compounding frequency}

Future value of Deposit made 2 year from today = $7500 * (1 + (4% / 4))^{1 * 4}

Future value of Deposit made 2 year from today = $7804.53

Value of Account in 3 years = Future value of Deposit made today + Future value of Deposit made 1 year from today + Future value of Deposit made 2 year from today

Value of Account in 3 years = $2817.06 + $5414.28 + $7804.53

Value of Account in 3 years = $16,035.88

jeff jeffy answered 1 year ago

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