Determine how much $1,000 deposited in a savings account paying 8% (componded annually) will be worth after 5 years. Then determine how much $1,000 depositied in a savings account paying 2% (compunded quarterly) will be worth afte 5 years. Solution Answer: (i) Amount $1,000 deposited in a savings account paying 8% (componded annually) will be worth after 5 years = Principal (1 + i)n = $ 1000 (1+ 0.08)5 = $ 1,469.33 (ii) $1,000 depositied in a savings account paying 2% (compunded quarterly) will be worth after 5 years = Principal (1 + i)n where Principal = $1000 i = interest i.e. 2% (compounded quarterly) (It has been assumed that 2% rate is per quarter n = number of periods (4 quarter x 5 years) = 20 after 5 years $1000 will be = $ [1000(1+ 0.02)20 ] = $ 1,485.95.