SOLUTION: Mrs james invested $4000 in a building society which paid simple interest at a rate of 7.25% per annum to its investors. After 2 years the rate was increased to 7.6% per annum. Fin

Question 1105820: Mrs james invested $4000 in a building society which paid simple interest at a rate of 7.25% per annum to its investors. After 2 years the rate was increased to 7.6% per annum. Find the amount of money she had at the end of 7 years.
Found 2 solutions by Boreal, Theo:
Answer by Boreal(15235) (Show Source): You can put this solution on YOUR website!
First is 4000(1+0.0725)^2=4601.025
That is the principal for 5 years at 1.076
1.076^5*4601.025=$6636.15
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
she invested 4000 at 7.25% simple interest per year for 2 years and then 7.69% interest for 5 years.

there are two ways of looking at this.

first way is the original investment stands for 7 years.

second way is she withdraws her money after 2 years and then re-invests it for remaining 5 years.

first way would be calculated as follows:

4000 * .0725 = 290 interest for the first 2 years.
4000 * .0760 = 304 interest for the next 5 years.

total interest is 290 * 2 + 304 * 5 = 2100.

add that to the principal of 4000 and she has 6100 at the end of 7 years.

second way would be calculated as follows:

4000 * .0725 = 290 interest for the first 2 years.

at the end of the first 2 years, she has 4000 + 2 * 290 = 4580.

she then turns around and re-invests that 4580 at .0760 interest for the next 5 years.

4580 * .0760 = 348.08 interest for the next 5 years.

at the end of the 5 years, she has 4580 + 5 * 348.08 = 6320.4.

first way is one investment with changing interest rate after 2 years.

second way is two investments; one for 2 years and then another for 5 years.

technically, in the second way, you are earning interest on interest which is not simple interest, but interest compounded after the second year.

consequently, if it is pure simple interest, i would go with the first way.

you should check with your instructor to see which way they are assuming.

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