FNGR 1| Lesson 2| Practice Solution

1.  a.  year 1:   \(5000(1.05) = 5250\) ; quarterly:  \(5000(1 + \large\frac{.05}{4})^4\)

year 2:  \(5000(1.05)^2 =5512.50\); quarterly: \(5000(1 + \large\frac{.05}{4})^8\)

year 3:  \(5000(1.05)^3 = 5788.13\); quarterly: \(5000(1 + \large\frac{.05}{4})^{12}\)

year 4:  \(5000(1.05)^4 = 6077.53\); quarterly: \(5000(1 + \large\frac{.05}{4})^{16}\)

b.  Earnings:  \(5000(1 + \large\frac{.05}{n})^{nt}\); where \(n\) is the number of times per year that the interest is calculated and \(t\) is the number of years.

2.  Simple interest is \(5000 + 5000(.05)(5) = 6250\)

Compounded daily:  \(5000(1 + \large\frac{.05}{360})^{360•5}= 6420.25\)

 

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