A bank has three types of account in which the interest rate depends on the amount invested. The ordinary account offers a return of 6% and is available to any customer. Extra account offers 7%, only available to customers with 5,000$ or more to invest, and super extra account offers 8% and is available only to customers with 20,000$ or more to invest. In each case interest is compounded annually and is added to the investment at the end of the year. A person saves 4,000$ at the beginning of the year for 25 years. Calculate the total amount saved assuming the money is transferred to a higher-interest account at the earliest opportunity.
The second column contains the balance at the beginning of year . The third column contains the interest rate used at the end of year . Then and and
Apr 11th 2011, 04:45 AM
Thanks for the reply. The answer you got is the same as in the textbook. However this question is in preparation for an exam and I will not be able to use EXCEL. If anyone is able to produce the an answer without using excel I would be very grateful.
Thanks again for your answer.
Apr 11th 2011, 07:42 AM
Well, you probably need a calculator unless you are amazing at calculations, rounding and estimates. In fact, you can do all 25 iterations in reasonable time. It is also possible to calculate , after which the interest rate stabilizes. Let . Then
Following the pattern and using the formula for the sum of geometric progression,