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WHEN LOIS MARTIN WAS BORN, HER FATHER DEPOSITED $2000 IN A SAVINGS
ACCOUNT IN HER NAME AT A SAVINGS AND LOAN ASSOCIATION (S&L). AT THE TIME,
THE S&L PAID 6% INTEREST COMPOUNDED SEMI-ANNUALLY. AFTER 10 YEARS, THE
S&L CHANGED TO A RATE OF 6% COMPOUNDED QUARTERLY. WHAT WAS THE
VALUE OF THE ACCOUNT AFTER 18 YEARS WHEN THE MONEY WAS WITHDRAWN TO
HELP PAY FOR HER COLLEGE EXPENSES

Respuesta :

anthougo

The future value of the savings account, after 18 years when it was withdrawn to help pay for Lois Martin's college expenses, would be $5,816.85.

How are the future values determined?

The future values of the savings account are calculated in two installments.

The first installment is for 10 years when the account earns 6% compounded semiannually.

Using the future value after 10 years, the second installment is for 8 years when the account earns 6% compounded quarterly.

Future values can be determined using the future value formula or an online finance calculator, as follows:

Data and Calculations:

Investment of $2,000 for 10 years:

N (# of periods) = 20 (10 years x 2)

I/Y (Interest per year) = 6%

PV (Present Value) = $2,000

PMT (Periodic Payment) = $0

Results:

FV = $3,612.22

Total Interest $1,612.22

Investment of $3,612.22 for 8 years:

N (# of periods) = 32 (8 years x 4)

I/Y (Interest per year) = 6%

PV (Present Value) = $3,612.22 ($2,000 + $1,612.22)

PMT (Periodic Payment) = $0

Results:

FV = $5,816.85

Total Interest $2,204.63

Thus, the value of the account after 18 years was $5,816.85.

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