Question

Tyra has recently inherited $5400, which she wants to deposit into an IRA account. She has determined that her two best bets are an account that compounds semi-
annually at an annual rate of 3.1 % (Account 1) and an account that compounds continuously at an annual rate of 4 % (Account 2).
Step 2 of 2: How much would Tyra's balance be from Account 2 over 3.7 years? Round to two decimal places.

Answer 1

The focus here is the use of "Compounding interest rate" and these entails addition of interest to the principal sum of the deposit.

• Tyra will definitely prefer the Account 2 over the Account 1

• Tyra balance from account 2 over 3.7 years is $6,261.37

The below calculation is to derive maturity value when annual rate of 3.1% is applied.

Principal = $5,400

Annual rate = 3.1% semi-annually for 1 years

A = P(1+r/m)^n*t where n=1, t=2

A = 5,400*(1 + 0.031/2)^1*2

A = 5,400*(1.0155)^2

A = 5,400*1.03124025

A = 5568.69735

A = $5,568.70.

In conclusion, the accrued value she will get after one years for this account is $5,568.70,

- The below calculation is to derive maturity value when the amount compounds continuously at an annual rate of 4%

Principal = $5,400

Annual rate = 4% continuously

A = P.e^rt where n=1

A = 5,400 * e^(0.04*1)

A = 5,400 * 1.04081077419

A = 5620.378180626

A = 5620.378180626

A = $5,620.39.

In conclusion, the accrued value she will get after one years for this account is $5,620.39.

Referring to how much would Tyra's balance be from Account 2 over 3.7 years. It is calculated as follows:

Annual rate = 4% continuously

A = P.e^rt where n=3.7

A = 5,400 * e^(0.04*3.7)

A = 5,400 * e^0.148

A = 5,400 * 1.15951289636

A = 6261.369640344

A = $6,261.37

Therefore, the accrued value she will get after 3.7 years for this account is $6,261.37

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