Lori-Anne invests $2,500 over a two-and-a-half-year period at 5% compounded quarterly. Thereafter, the interest rate changes to 6% compounded monthly. Determine the value of the investment two years after the interest rate change.
A) $7,190.63
B) $6,190.63
C) $5,190.63
D) $4,190.63
E) $3,190.63

Question

Quizplus · Accepted Answer

First, calculate the value after 2.5 years at 5% compounded quarterly:  A = 2500(1 + 0.05/4)^(4*2.5) = 2500(1.0125)^10 ≈ $2,819.41.  Then, calculate the value after 2 more years at 6% compounded monthly:  A = 2819.41(1 + 0.06/12)^(12*2) = 2819.41(1.005)^24 ≈ $3,190.63.

Lori-Anne Invests $2,500 Over a Two-And-A-Half-Year Period at 5% Compounded