31. In August 2011, Netflix announced significant changes to its pricing plans.

Question

31. In August 2011, Netflix announced significant changes to its pricing plans. The new plans separate DVD-only subscriptions and streaming-only subscriptions, with each basic plan costing $7.99 a month. Previously, Netflix offered customers a basic combo plan for one DVD at a time and unlimited steaming that used to cost $9.99 and now will cost $15.98 a month.
You are an existing Netflix subscriber with the basic combo plan. You are furious that Netflix would demand a 60% price increase without adding any benefits to your plan, so you promptly cancel your Netflix subscription. You calculate the present value of your savings over 5 years to be $475.00. If you invest this amount in a 5-year bond that pays 8.5% interest compounded annually, how much interest on interest will you earn?
a. $9.43
b. $37.36
c. $40.38
d. $239.24

Explanation / Answer

The formula for compounded interest problem is:

FV=P(1+r)y

FV= Future Value, PV= Present Value, P= Principal, r= Rate (interest), y= years, 8.5% in a decimal = .085

FV= $475 (1+.085)5

FV= $475 (1.5036566)

FV= $ 714.24

FV- PV= Amount of interest earned

$714.24- $475.00=$239.24

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.