Question
Lucas wins $50,000(after taxes) in the lottery and decides to invest half of it in a 5-year CD that pays 5.35 percent compounded quarterly (4 times/year). He invests the other half in a money market fund that unfortunately turns out to average only 2.6 percent interest compunded annualy over the 5-year period. How much money will he have altogether in the two accounts at the end of the 5-year period?
Answers
P1 = Po(1+r)^n.
Po = $25,000.
r = (5.35%/4)/100% = 0.01338 = Quarterly % rate expressed as a decimal.
n = 4comp./yr. * 5yrs. = 20 Compounding
periods.
P2 = Po(1+r)^n.
r = 2.6%/100% = 0.026 = Annual % rate.
n = 1comp./yr. * 5yrs. = 5 Compounding
periods.
P1+P2 = Total Amt.
Po = $25,000.
r = (5.35%/4)/100% = 0.01338 = Quarterly % rate expressed as a decimal.
n = 4comp./yr. * 5yrs. = 20 Compounding
periods.
P2 = Po(1+r)^n.
r = 2.6%/100% = 0.026 = Annual % rate.
n = 1comp./yr. * 5yrs. = 5 Compounding
periods.
P1+P2 = Total Amt.