Question

In: Finance

if you have $21,000 in an account which pays 2.9% compounded annually how many additional dollars...

if you have $21,000 in an account which pays 2.9% compounded annually how many additional dollars of interest would you earn over five years if you move the money to an account earning 4.3% compounded quarterly round to the nearest cent

Solutions

Expert Solution

Amount available in account = $21,000

- Calculating the Future Value after 5 years with Interest rate @2.9% compounded annually:-

where, Invested amount = $21,000

r = Interest rate = 2.9%

n= no of periods = 5

m = no of times compounding in a year = 1 ( compounded annually)

Future Value = $24,226.81

So, Future Value in 5 years with Interest rate @2.9% compounded annually

- Now, Calculating the Future Value after 5 years with Interest rate @4.3% compounded Quarterly:-

where, Invested amount = $21,000

r = Interest rate = 4.3%

n= no of periods = 5

m = no of times compounding in a year = 4 ( compounded Quarterly)

Future Value = $26,007.24

So, Future Value in 5 years with Interest rate @4.3% compounded Quarterly

Additional Interest earned = $26,007.24 - $24,226.81

= $1780.43

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