I initially invest $50,000 for 8 years at simple interest annually at a nominal
ID: 2681724 • Letter: I
Question
I initially invest $50,000 for 8 years at simple interest annually at a nominal rate of 4.5% p.a. At the end ofthis initial investment, I subsequently invest the total accumulated amount (principal plus interest earned) in a
term deposit account for five years. This account pays compound interest monthly at a fixed nominal rate of
5.78% p.a. After five years invested in this term deposit account I close the account, for which the bank
charges me a 0.01% service charge (on the total balance of the account). What is the amount I receive on
closing the term deposit account?
Explanation / Answer
Accumulated amount after 8 years = $50,000 + $50,000*8*4.5% =68000 Amount after five years of term deposit = 68000*(1+5.78%/12)^(5*12) = $90,723.27 Balance after service charge = $90,723.27*(1-0.01%) = $90,714.20 amount I receive on closing the term deposit account = $90,714.20