Calculate the future value of quarterly payments of $1200 for 5 years, if the rate of interest was 10% compounded quarterly for the first 2 years and will be 9% compounded quarterly for the last 3 years.

Question

I solved for both which i got

aFV= $10483.34
bFV= $16322.67
to get this answer i used this formula: FV=PMT((1+i)^n))-1/i

i just don't know what i should do now?

Answer 1

$10483.34 is the future value of the first two years of investment at the end of the second year.

$16322.67 is the future value of the 3rd, 4th and 5th years of investment at the end of the fifth year (end of term).

The only thing left to do is to calculate the future value of the first two years of investment at the end of term (5th year) at the rate of 9% pa, or 2.25% per quarter.
FV=10483.34*(1.0225)^(4 quarters * 3 years)
= 10483.34*(1.0225)^12
= $13691.76

So the total future value at end of term (5 years) is:
$13691.76+16322.67
=$30014.43

Check my work.

Answer 2

Thank u soo much...u really helped me at the right time...i have final exam tomorrow...and i am now prepared..thanks again!!!