Question

jack deposits the following amounts in a savings plan which pays 4.2% per annum, compounded monthly: $2571 today, $1100 at the end of year two and $1500 at the end of year three. The amount he will have in exactly 3 years is closest to:

Answer 1

1)

$2,571 invested today

This means that that the amount is invested for 3 years, and interest is compounded 36 times (12 months x 3 years)

Amount = Principal x ( 1 + interest rate per period ) ^ no. of compounding periods

Interest per annum = 4.2%, therefore interest per month = 4.2%/12 = 0.35%

Amount = 2,571 x (1+ 0.0035)^36

Amount =

2915.598

2)

$ 1100 is invested at the end of year two

This means that that the amount is invested for 1 year, and interest is compounded 12 times (12 months x 1 year)

Amount = Principal x ( 1 + interest rate per period ) ^ no. of compounding periods

Interest per annum = 4.2%, therefore interest per month = 4.2%/12 = 0.35%

Amount = 1,100 x (1+ 0.0035)^12

Amount =

1147.1

3)

$ 1500 is invested at the end of year three

Since, the investment is made at the end of year three, no interest will be accrued on this sum exactly after three years from today

Amount =

1,500

Answer

The amount Jack will have exactly after 3 years will be = $ 2,915.6 + $ 1,147.1 + $ 1,500 = $ 5,562.7