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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 At the start of year 2, $200 is withdrawn, at the start of year 3, $300 is deposited.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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