Question

9. Barbara invests £14,000. In the first year, she earns 5.9% interest. In the second year, she earns 3.2% interest, a. What was the total percentage increase over the 2 years?

Answer 1

Answer:

Step-by-step explanation:

Use future value formula to get the total amount at the end of year 1 and year 2;

First, find FV at the end of 1 year.

FV = P(1+r)^n

P = principal amount or amount invested in present value terms = 14,000

r= discount rate = 5.9% OR 0.059 as a decimal

n= total duration of investment = 1

FV = 14,000(1.059)^1

FV= 14,826

Next, find FV of 14,826 at the end of year 2;

P = principal amount or amount invested in present value terms = 14,826

r= discount rate = 3.2% OR 0.032 as a decimal

n= total duration of investment = 1

FV = P(1+r)^n

FV = 14,826 (1.032)^1

FV = 15,300. 432

Percentage increase =[ (New value - Old value)/Old value] *100

 = [ (15,300.432 - 14,000)/14,000] *100

= (1,300.432/14,000)*100

= 9.2888

Therefore total percentage increase over the 2 years = 9.29%