Question

You save $8,500.00. You place 40% in a savings account earning a 4.2% APR compounded annually and the rest in a stock plan. The stock plan decreases 3% in the first year and increases 7.5% in the second year. What is the total gain at the end of the second year for both accounts combined?

Answer 1

Answer:

The total gain at the end of the second year for both accounts combined is $509.09.

Step-by-step explanation:

Amount saved = $8500

40% of 8500 is saved in saving account; $0.4\times8500=3400$

Remainder amount in stock plan; $8500-3400=5100$

Working for savings plan:

$A=p(1+\frac{r}{n})^{nt}$

Here, p = 3400 ; n = 1 , t = 2 , r = 0.042

Putting values in formula:

$A=3400(1+\frac{0.042}{1})^{2}$

$A=3400(1+0.042)^{2}$

A = $3691.60

We get a gain of $3691.60-3400=291.60$ dollars

Working for stock plan:  

The stock plan decreases 3% in the first year and increases 7.5% in the second year.

$5100\times 0.97=4947$

When increases;

$4947\times1.075=5318.03$  dollars

So, we get a gain of $5318.03-5100=218.03$ dollars  

Therefore, we have a total gain of $291.06+218.03=509.09$ dollars.