Question

Ten years ago, you deposited $2,500 into an account. Five years ago, you added an additional $2,500 to his account. You earned 8 percent for the first 5 years and 12 percent for the last 5 years, both compounded annually. How much money do you have in your account today?

Answer 1

For first 5 years:

Amount deposited = $2,500
Interest rate = 8%

Value at the end of 5 years = $2,500 * 1.08^5
Value at the end of 5 years = $2,500 * 1.469328
Value at the end of 5 years = $3,673.32

For next 5 years:

Additional deposit = $2,500
Interest rate = 12%

Value at the end of 10 years = $3,673.32 * 1.12^5 + $2,500 * 1.12^5
Value at the end of 10 years = $3,673.32 * 1.762342 + $2,500 * 1.762342
Value at the end of 10 years = $10,879.50

Therefore, you will have $10,879.50 in your account today.