You invest $1,000 at a variable rate of interest. Initially the rate is 4% compounded annually for the first year, and the rate increases oneminushalf of one percent annually for five years (year two's rate is 4.5%, year three's rate is 5.0%, etc.). How much will you have in the account after five years?

Question

Carolina Brewer

Business

26 June, 10:53

You invest $1,000 at a variable rate of interest. Initially the rate is 4% compounded annually for the first year, and the rate increases oneminushalf of one percent annually for five years (year two's rate is 4.5%, year three's rate is 5.0%, etc.). How much will you have in the account after five years?

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Answers (1)

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Micah Espinoza · Answer 1

You will have $1,276 in your account after 5 years.

Explanation:

The interest rate information is given for 6 years but the question is only asking the amount after 5 years, so I only make the calculation for that.

Rate in:

first year: 4% second year: 4.5% third year: 5% fourth year: 5.5% fifth year: 6%

Assuming interest in compounded throughout five years, the amount you will have in your account is:

FV = 1,000 * (1 + 0.04) * (1 + 0.045) * (1 + 0.05) * (1 + 0.055) * (1 + 0.06) = $1,276