You deposit $1000 today in an account that pays interest at j₂ = 8% for the next 5 years and j₂ = 6% thereafter.How many complete interest periods will it take for you to accumulate at least double your original investment?

Question

Quizplus · Accepted Answer

To accumulate at least double the original investment, we need to calculate the future value of the investment after 21 periods (5 years at 8% and 16 years at 6%) and see if it is greater than or equal to $2000.

Using the formula for compound interest: FV = PV(1+r)^n, where PV is the present value, r is the interest rate per period, and n is the number of periods.

FV = 1000(1+0.08)^5(1+0.06)^16
FV = $2055.10

Since the future value is greater than $2000, it will take 21 periods to accumulate at least double the original investment. Therefore, the answer is C) 21 periods.

You Deposit $1000 Today in an Account That Pays Interest