Bernie deposited $4000 into an account that pays 4%/a compounded quarterly during the first year The interest rate on this account is then increased to 0.2% each year. Calculate the balance in bernie's account after three years.
My approach is
for the first year
P = $4000 ; i = 4%/4 = 0.01 ; n = 1*4 = 4 quarterly
A = P(1+i)^n
A = 4000(1+0.01)^4
A = $4162.42
So at the end of first year he will have $4162.42. Now since the interest is increasing every year after that by 2%
Now im stuck at this point. i don't know how to calculate when the interest is increasing by 0.2% every year.
The answer given is $4543.12
Any help would be appreciated! Thankyou
My approach is
for the first year
P = $4000 ; i = 4%/4 = 0.01 ; n = 1*4 = 4 quarterly
A = P(1+i)^n
A = 4000(1+0.01)^4
A = $4162.42
So at the end of first year he will have $4162.42. Now since the interest is increasing every year after that by 2%
Now im stuck at this point. i don't know how to calculate when the interest is increasing by 0.2% every year.
The answer given is $4543.12
Any help would be appreciated! Thankyou
-
After the first year, you increase the interest (in the first year) to (0.4+0.002)/4=0.1005. So the interest in the second year quarterly is 0.1005. Take the P as $4543.12(balance after the first year).
After the second year, increase the interest again. (0.4+0.002+0.002)/4=0.101. So the interest in the third year quarterly is 0.101. The balance after the second year is the P in the third year.
Sorry no calculator with me currently. Cant help you work the answer out sorry..
After the second year, increase the interest again. (0.4+0.002+0.002)/4=0.101. So the interest in the third year quarterly is 0.101. The balance after the second year is the P in the third year.
Sorry no calculator with me currently. Cant help you work the answer out sorry..