Sara deposits R900 into a savings account earning 61.5% interest per year compounded quarterly.

Question

After three

and a half years she withdraws R1 000 from the account and deposits it into another account paying 11%

interest per year compounded semi-annually. How much is the total amount accrued from both accounts two

years after making the second deposit?

[1] R1 366,67

[2] R2 138,82

[3] R1 384,27

[4] R2 227,85

[5] None of the above.

Answer 1

61.5% per year (a very generous interest rate indeed!) is 61.5/4%=15.375% a quarter. The amount plus compound interest after 3.5 years (14 quarters) is given by 900*1.15375^14=R6665.10, from which she draws R1000, leaving R5665.10. 11% per year is 5.5% semiannually. The amount plus compound interest after 2 years (4 half-years)=1000*1.055^4=R1238.82. In the meantime, R5665.10 is accumulating compound interest every quarter, and 2 years is 8 quarters, so the accumulated amount is 5665.10*1.15375^8=R17786.93. Add this to the accumulated amount from the R1000 investment and we get R19025.76. This answer corresponds to [5] "None of the above".