Course: Theory of Interest

This is a 2-parter question,

a) An account earning 5% annual effective interest is opened
with a $500 deposit. At the start of year 2, $200 is withdrawn, at
the start of year 3, $300 is deposited. What is the amount of the
account at the start of year 4?

b) The account in problem (a) is transferred to a new account
at the start of year 4. The accumulated amount plus $500 is
deposited at this time. $200 is deposited at the start of year 5
and the account shows a balance of $1717.34 at the end of year 7.
What effective rate of interest did the account earn in years 4
through 7?

Answer:

a) $673.31

b) 5.9657%

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