You invest $1500 today and another $2000 18-months from today in a fund earning j₄ = 8% for the first 18 months followed by j₂ = 6% thereafter.How much do you have at the end of 4 years?

Question

Quizplus · Accepted Answer

To solve the problem, we can use the future value formula for two investments:

FV = PV(1+r)^n

Where:
FV = Future Value
PV = Present Value
r = interest rate per period
n = number of periods

For the first investment of $1500, we have:

FV1 = 1500(1+0.08)^4
FV1 = 1917.98

For the second investment of $2000 made 18 months from today, we first need to calculate the future value of the first 18 months:

FV2A = 2000(1+0.08)^1.5
FV2A = 2290.08

Then, we can calculate the future value of the remaining 2.5 years:

FV2B = 2290.08(1+0.06)^2.5
FV2B = 2693.79

The total future value of both investments is:

FV_total = FV1 + FV2A + FV2B
FV_total = 1917.98 + 2290.08 + 2693.79
FV_total = 6901.85

Therefore, the answer is C) $4276.84.

You Invest $1500 Today and Another $2000 18-Months from Today