You invest $12 300 of your money in a locked-in savings account that earns 4.92% compounded monthly for 7 months. You have a family emergency and need to withdraw your funds 2 months early. You sell the savings account at a 5.6% compounded quarterly interest rate. How much did you sell the account for?

Question

Quizplus · Accepted Answer

First, calculate the future value of the investment after 5 months (since it's withdrawn 2 months early) using the formula for compound interest: $A = P(1 + \frac{r}{n})^{nt}$, where $A$ is the amount of money accumulated after n periods, including interest, $P$ is the principal amount (the initial amount of money), $r$ is the annual interest rate (decimal), $n$ is the number of times that interest is compounded per unit $t$, and $t$ is the time the money is invested for in years. For the first 5 months at 4.92% compounded monthly: $A = 12300(1 + \frac{0.0492}{12})^{12*(5/12)}$. Then, sell the account at a 5.6% compounded quarterly rate for the remaining 2 months: $A = P(1 + \frac{0.056}{4})^{4*(2/12)}$, where $P$ is the amount calculated from the first step. The correct calculation leads to an amount of approximately $12,540.61.

You Invest $12 300 of Your Money in a Locked-In