An engineer wants to invest 61985 in a savings account for 1

An engineer wants to invest $61,985 in a savings account for 10 years. The account pays 15% for the first 8 years and 17.1% the remaining years. Interest is compounded quarterly. How much will that investment be worth at the end of 10 years?

Solution

Effective annual interest rate for the first 8 years = (1+15%/4)^4 – 1 = 15.865%

Effective annual interest rate for the year 9 and 10 = (1+17.1%/4)^4 – 1 = 18.228%

P = $61985

Time = 10 years

So,

Future value = 61985*(1+15.865%)^8 * (1+18.228%)^2

Future value = $281413.8

So, the value of investment after 10 years, will be $281413.8 approx.