Question

Mr. Jones now has a $100,000 balance in a bank account which earns 7% annual interest. One year from now, he will withdraw 10% of the total amount in the account and reinvest that amount withdrawn in a different account earning 12% at a second bank. He repeats this procedure each year thereafter, transferring 10% of his account at the first bank to the second bank. After 40 years from now, how much does he have at each bank? (Hint: You are not allowed to calculate values at banks each year starting with year 1 till year 40. You should use the engineering economy factors we learned in the lecture)

Answer 1

A $100,000 balance in a bank account which earns 7% annual interest,
Withdraw 10% of the total amount in the account and reinvest that amount withdrawn in a different account earning 12% at a second bank & repeated for 40 Years.
After 40 years from now, how much does he have at each bank ?

(Assumptions : Interest rate compounding annually, & investment into second bank started at the end of first year, meanwhile their duration is 39 years)
Balance into First bank Having 7% ROI = $22,134

Balance into Second bank Having 12% ROI = $6,326,606

Total Bank Balance = $ 6,348,739