Bob deposited $25k in a savings account @ 10% interest compounded semiannually. At the beginning of year 4 he deposited another $40k @10% compounded semiannually. At the end of 6yrs, what is the balance in his account? I have worked it out several ways, but now I am unsure of which way to go....(Worried)
25000x1.7716 (per table in my book)=44290-25000=$19290 interest for 4yrs off $25000
40000x1.4641=58564-40000=18564 interest for 2 yrs off $40000
I also worked it out this way.......
4yrsx2=8 periods; 5%
25000x2.1436(book table)=53590-25000=$28590 interest for 4 yrs off $25000
40000x1.4641=5864-40000=18564 interest for 2yrs off $40000
really? ... does $19290 interest on a 3 year investment of $25000 at 10% make sense?
if so, let me know where that institution is ... I'll deposit all I have ASAP.
general equation for compounded interest is
where A = account balance after t years paid at an APR of r, compounded n times a year.
after 3 years ...
add 40000 at the end of year 3 ...
at the end of 6 years
You could also do this by calculating the balance on the first amount for the full 6 years:
the the balance on the second amount for three years: and then adding: $98500.23.
The powers of "12" and "6" are, of course, the 12 "half years" in 6 years and 6 "half years" in 3 years. And, of course, the "1.05" is the 10% per year divided by 2 since we are dealing with half years, together with the "1" for the original amount.
That was probably confusing you.
Originally Posted by businessmgmt
It is the SAME as "At the end of year 3".