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19 April, 08:57

You just deposited $6,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?

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  1. 19 April, 09:02
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    The correct answer is $20,543.17.

    Explanation:

    According to given scenario, the given data are as follows:

    1st Payment (Pmt) = $6,500 for 12 Quarters

    Interest rate = 4%

    2nd payment = $5,000 for 8 Quarters

    3rd payment = $7,500 for 4 Quarters

    So, future value can be calculated as follows:

    FV = 1st PV (1 + r) ^n + 2nd PV (1 + r) ^n + 3rd PV (1 + r) ^n

    FV = $6,500 * (1 + 4%/4) ^12 + $5,000 * (1 + 4%/4) ^8 + $7,500 * (1 + 4%/4) ^4

    = $6500 * (1.01) ^12 + $5,000 * (1.01) ^8 + $7,500 * (1.01) ^4

    = $7,324.36 + $5,414.28 + $7,804.53

    = $20,543.17

    Hence, the correct answer is $20,543.17.
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