SOME ONE PLEASE HELP!!!!!!! You want to invest your savings of $30,000 in govern
ID: 2636674 • Letter: S
Question
SOME ONE PLEASE HELP!!!!!!!
You want to invest your savings of $30,000 in government securities for the next 2 years. Currently, you can invest either in a security that pays interest of 8.4 percent per year for the next 2 years or in a security that matures in 1 year but pays only 5.8 percent interest. If you make the latter choice, you would then reinvest your savings at the end of the first year for another year.
If you choose the 2-year security, the value of your savings after the second year will be?
If you choose to invest in the 1-year security, the value of your savings after the first year will be?
***************I tried working the first problem and I came up with $35, 040. But I got it wrong and my test showed it is as 35, 252. Can someone please explain IN SIMPLE STEPS how they arrived at that answer? And how I can get the next one?
Explanation / Answer
Calculation of Interest for 2 year Govt. Securities:
Investment = $30,000
Interest rate = 8.4%, Time= 2 Years
Interest For 1st Year = 30,000 x 8.4% = $2,520
Total Amount of Investment after 1st Year =30,000 + 2,520 = $32,520
Interest for 2nd Year = 32,520 x 8.4% = $2,732
Total value of Investment after 2 Year = $35252 (32,520 + 2,732)
Calculation of Interest of 1 Year Security:
30,000 x 5.8% = $1,740
Total Value of Investment after 1 Year: 30,000 + 1,740 = $31,740
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