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Hi,
I am struggling to grasp the answer to Q4 on the practice questions for Chapter 20 (of the lecture notes).
Question is: A person invests $600 for a period of 8 years. Interest is compounded at 5% per annum for the first 3 years, and 6% per annum for the remaining 5 years. How much will they have at the end of 8 years?
I would use calculations 600 x (1.05) to power of 3 + (1.06)to power of 5 but I end up with $695 NOT the correct answer of $929.
Please explain how to arrive at the answer with workings please.
Thank you!!
Surely the answers is as follows
$600×1.05^3
Then ANS from above of $694.575
$695.575×1.06^5= $929.498Dumonde: You answer is correct (although please don’t answer in this forum because it is Ask the Tutor Forum. (But do certainly help people in the other F2 forum 🙂 ) )
Whoops! My apologies John, I didn’t know we were not supposed to answer here, thanks for the heads up.
Thank you very much to both of you for your help! I’m not sure why I was convinced to use addition but it all makes sense now 🙂 thank you
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