Suppose you invest $5,000 for 5 years. The interest rate for the first 2 years is 4.7%, 5.2% for year 3 and 5.4% for the final 2 years. Assuming interest compounds annually, what would your investment have returned in those 5 years?
What will be an ideal response?
Y2 = $5,000(1 + 0.047)2 = $5,481.04
Y3 = $5,481.04 (1 + 0.052) = $5,766.06
Y5 = $5,000(1 + 0.054)2 = $6,405.61
($5,481.04 + $5,766.06 + $6,405.61)/$5,000 = 28.11%
Economics
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