Question

When I was considering what to do with my $10,000 lottery winnings, my broker suggested that I invest half of it in gold, the value of which was growing by 7% per year, and the other half in certificates of deposit (CDs), which were yielding 3% per year, compounded every 6 months. Assuming that these rates are sustained, how much will my investment be worth in 14 years? (Round your answer to the nearest cent.)

Answer 1

Answer: $20,478.78

Explanation:

In 14 years the investment will be,

Gold

10,000/2 = 5000

Then use the compound interest formula

5000 * (1+0.07)^ 14 = $12,892.67

For Certificates of Deposits.

Use the Compound interest formula

Rate and period are in years. Convert to semi annual basis.

3%/ 2 = 1.5%

14 * 2 = 28 periods

= 5000 ( 1+ 0.015) ^ 28

= $7,586.11

Add both

=$12,892.67 + $7,586.11

= $20,478.78