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March 28, 2017

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Lee Holmes deposited $ 15,000 in a new savings account at 9% interest compounded semiannually, At the beginning of year 4, Lee deposites an additional $40000 at 9% interest compounded semiannually. At the end of the 6 years what is the balance in Lee;s account

  • Business Math - ,

    P1 = Po(1+r)^n.

    P1 = Principal after 1st 3 years.

    Po1 = $15,000 = Initial deposit @ beginning of the 1st 3 years.

    r = (9%/2)/100% = 0.045 = Semi-annual %
    rate expressed as a decimal.

    n = 2Comp/yr * 3yrs = 6 Compounding
    periods.

    Solve the given Eq and get:
    P1 = $19,533.90.

    P2 = Po2(1+r)^n.

    P2 = Principal amount after the 2nd 3 years.

    Po2 = 19,533.90 + $40,000 = $59,533.90
    = Initial deposit for 2nd 3 years.

    Solve for P2.

    Answer: P2 = $77,528.63.

    NOTE: r,and n are the same for both P1 and P2 calculations.

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