Lucas wins $50000 (after taxes) in the lottery and decides to invest half of it in a 5-year CD that pays 5.35% interest compounded quarterly (4 times/year). He invests the other half in a money market fund that unfortunately turns out to average only 2.6% interest compounded annually over the 5-year period. How much money will he have altogether in the two accounts at the end of the 5-year period?

Jaxson Mack

Jaxson Mack

Answered question

2022-08-04

Lucas wins $50000 (after taxes) in the lottery and decides to invest half of it in a 5-year CD that pays 5.35% interest compounded quarterly (4 times/year). He invests the other half in a money market fund that unfortunately turns out to average only 2.6% interest compounded annually over the 5-year period. How much money will he have altogether in the two accounts at the end of the 5-year period?

Answer & Explanation

kunstdansvo

kunstdansvo

Beginner2022-08-05Added 16 answers

Step 1
A = P ( 1 + r / n ) n t = 25000 ( 1 + 0.0535 4 ) 4 × 5 = 25000 ( 1 + 0.0535 4 ) 20 = 25000 ( 4 + 0.0535 4 ) 20 = 25000 ( 4.0535 4 ) 20 = 25000 × ( 1.013375 ) 20 = 25000 × 1.309 = 32609.47 D o l l a r s
Step 2
For another
P = 25000 D o l l a r r = 2.6 % = 2.6 100 = 0.026 t = 5 n = 1
A = P ( 1 + r / n ) n t = 25000 ( 1 + 0.026 1 ) 1 × 5 = 25000 × ( 1.026 ) 5
= 25000 × 1.1369
= 28423.45 D o l l a r s
So total money in both account at the end of 5 year
= 32609.47 + 28423.45 = 61032.92 D o l l a r s

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