You deposit £1 million for 10 years. It accumulates interest at 6% quarterly for the first 5 years and 6.5% semi-annually for the next 5 years. The interest is automatically added to the capital at each payment date. What is the total accumulated value at the end of 10 years?

Answer:

Deposit amount = Present value =  £1,000,000

First 5 years:

Quarterly Interest rate = 6%/4 = 1.5%

Number of quarterly periods = 5 * 4 = 20

FV = PV *(1 + Periodic interest rate)^Number of periods

Future value at the end of first 5 years = 1000000 *(1 + 1.5%)^20 = £1,346,855.01

Next 5 Years:

Semiannual Interest rate = 6.5%/2 = 3.25%

Number of semiannual periods = 5 * 2 = 10

Future value at the end of first 10 years = 1346855.01 *(1 + 3.25%)^10 =1854476.99

Accumulated value at the end of 10 Years = £1,854,476.99