(Original post by gabriel 41)
There's a question I got here, and the second part of the question is giving me problems. Here's the question:
A manufacturing company has to replace a piece of equipment in three years’ time,
and it is assumed that the replacement machine will cost £45,000.
(i) If the company already has the £45,000, calculate how much of this must be
invested now, to buy this piece of equipment in three years’ time, if the interest
rate which can be earned on investments is 8%. (Interest earned each year will be
re-invested and no money will be withdrawn.) Give your answer to the nearest £.
(ii) Instead of investing all the money now, the company decides to invest £15,000
at the beginning of each of the three years. Interest at 8% will be earned on
each year’s investment and re-invested as in part (i). Calculate the value of this
investment at the end of the third year, giving your answer to the nearest £.
So part (i) of the question is very okay for me; however, part (ii) is the problem. I'm not getting the correct answer in it. I use the simple interest formula and in year one I get interest of 1200 then in the second year I use the simple interest formula but this time around I work it out on the principle of 16200 and get an interest of 1296. Then in year 3 I use the formula again on the principle of 17496 and get and interest of 1400, to the nearest pound. so then the value of the investment at the end of 3 years should be 1400+ 17496 = 18896. However, this isn't the answer and the answer is 52,592. I don't understand how we reach this answer because in the mark scheme they show the principles of 3 years being added up together. Why? Because we are supposed to find the value
of the investment at the end of three years and not add the principles of three years together, so why isn't my method working? Please help me understand this or show me an alternative way of solving the problem. Thanks.