Albert made investments of $1000 each for two years. The first one at an interest of 4.8% compounded monthly and the second at 4.9% compounded annually. Calculate the total value of his investment in two years.
A) $1100.55
B) $1100.40
C) $2000
D) $2200.95
E) $2100.55

Question

Quizplus · Accepted Answer

The first investment grows with monthly compounding interest, so we use the formula A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($1000), r is the annual interest rate (4.8% or 0.048), n is the number of times that interest is compounded per year (12), and t is the time the money is invested for in years (2). For the first investment, A1 = 1000(1 + 0.048/12)^(12*2) = $1000(1 + 0.004)^24 ≈ $1096.55.The second investment grows with annual compounding interest, so we use the formula A = P(1 + r)^t, where A is the amount of money accumulated after t years, including interest, P is the principal amount ($1000), r is the annual interest rate (4.9% or 0.049), and t is the time the money is invested for in years (2). For the second investment, A2 = 1000(1 + 0.049)^2 ≈ $1104.40.The total value of his investment in two years is A1 + A2 = $1096.55 + $1104.40 = $2200.95.

Albert Made Investments of $1000 Each for Two Years