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Discounting and investment appraisal

Question 3

Compound interest

An amount of $600 is invested for 2 years earning compound interest at a rate
of 5% per year. What is the final sum on the account at the end of two years?

Year 1: $600 × 5% = $30 interest earned and balance on account is $630

Year 2: $630 × 5% = $31.50 interest earned and balance on account is $661.50

Question 4

Compound interest formula

An amount of $1,500 is invested for 3 years into an account earning compound
interest at a rate of 0.2% per month. What is the final sum on the account at the
end of two years?

n
V = P(1 + r)
P = $1,500, r = 0.002, n = 36

36
V = $1,500 (1 + 0.002) = $1,611.87

105