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Chapter 4: 4-9-31BP (page 284)

Question: Beverly Hills started a paper route on January 1. Every three months, she deposits $550 in her bank account, which earns 8 percent annually but is compounded quarterly. Four years later, she used the entire balance in her bank account to invest in an investment at 7 percent annually. How much will she have after three more years?

Short Answer

Expert verified

Answer

The future value of the investment after the three years is $12,809.83.

Step by step solution

01

Identification of the required information

Payment (PMT) = $550

Periods for quarterly compounding (n1) = 16 (4 years*4 quarters)

Interest Rate for quarterly compounding (i1) = 2% (8%/4)

Re-investment period (n2) = 3

Re-investment rate (i2) = 7%

02

Future value of investment after the three years (FV)

FV=PMT脳[1+i1n1+1i1]脳(1+i2)n2$550=脳[(1+2%)16+12%]脳(1+7%)3$12,809.83

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