Multiple compounding periods (FV): Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank term deposit that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years?

Question

Quizplus · Accepted Answer

This is a problem related to future value (FV) calculation with multiple compounding periods. The formula to calculate FV is:

FV = PV * (1 + r/n)^(n*t)

Where: 
PV = Present Value
r = annual interest rate
n = number of compounding periods per year
t = number of years

In this problem, 
PV = $5,000
r = 4.25% 
n = 4 (since interest is compounded quarterly)
t = 2

So, 
FV = $5,000 * (1 + 0.0425/4)^(4*2) 
FV = $5,441.35

Therefore, the best choice is B, with an FV of $5,441.

Multiple Compounding Periods (FV): Your Brother Has Asked You to Help