Solve the problem. Round to the nearest cent. Teresa started investing by deposi

Question

Solve the problem. Round to the nearest cent. Teresa started investing by depositing a single payment of $2500.00 into her account. She then waited one quarter or 3 months befone making regular $100 payments (annuity ) Her account pays 6% compounded quarterly. After 4 years, she puts the accumulate amount into a certificate of deposit paying 85% compounded semiannually for 1 year. When this certificate matures, how much will Teresa have accumulated? A) $5140.19 B) S5013.29 C) $5448.47 D $5164.82

Explanation / Answer

Initial investment of 2500 after 4 years and 3 months

r = 6%/4 = 1.5%

n = 17 quarters(4 years and 3 months)

FV1 = 2500*(1+1.5%)17 = 3220.05

100 annuity investment

r = 6%/4 = 1.5%

n = 16 quarters(4 years )

FV2 = 100*((1+1.5%)16 -1) / 1.5% = 1793.24

Invested in CD = 3220.05 + 1793.24 = 5013.29

n = 2 ( 1 year)

r = 8.5% /2 = 4.25%

Accumulated value = 5013.29*(1+4.25%)2 = 5448.47 (Option C)

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