Question

If you deposit $82,000 in an interest bearing account that earns you 2.9% annual interest (compounded annually) in the first 4 years, 2.1% annual interest (compounded annually) for the next 4 years and 7.7% annual interest (compounded annually) for the following 4 years, how much money will you have at the after these 3 interest periods?

Answer 1

Initial deposit = $82,000

First interest period

Interest rate = 2.9% or 0.029

Time period = 4 years

Calculate the amount at the end of first interest period -

Amount = $82,000 * [1 + 0.029]4

Amount = $82,000 * 1.1211

Amount = $91,930.2

The amount at the end of first interest period is $91,930.2

Second interest period

Interest rate = 2.1% or 0.021

caculate the amount at the end of second interest period -

Amount = Amount at the end of first interest period * (1+interest rate)n

Amount = $91,930.2 * (1+0.021)4

Amount = $91,930.2 * 1.0867

Amount = $99,900.55

The amount at the end of second interest period is $99,900.55

Third interest period

Interest rate = 7.7% or 0.077

Calculate the amount at the end of third interest period -

Amount = Amount at the end of second interest period * (1+interest rate)n

Amount = $99,900.55 * (1+0.077)4

Amount = $99,900.55 * 1.3454

Amount = $134,406.2

Thus,

The amount after these 3 interest periods is $134,406.2