The maturity value of a savings account that belonged to Peach Company was $28,958

Finance Apr 19, 2021

The maturity value of a savings account that belonged to Peach Company was $28,958.50. The interest charged for the first 2 years was 5% compounded semi-annually, and 4% compounded quarterly for the next 3 years.

a. Calculate the amount that was deposited in the savings account at the beginning of the period.

b. Calculate the total amount of interest earned from this investment.

Expert Solution

a) Computation of Deposited Amount or Present Value:

Present Value = Future Value/(1+Interest Rate)^Number of Compounding Periods

= $28,958.50/ ((1+5%/2)^(2*2)*(1+4%/4)^(3*4))

= $28,958.50/1.2438

Present Value = $23,282.21

b) Computation of Total Amount of Interest:

Total Amount of Interest = Future Value - Present Value

= $28,958.50 - $23,282.21

Total Amount of Interest = $5,676.29

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