An investor makes a single deposit of 10,000 into fund A for 10 years which earns a 6% effective rate of interest payable directly to the investor each year. During the first 5 years, the interest payments can only be reinvested into Fund B which earns 4% effective over the entire 10-year period. During the second 5 years, the interest payments can only be reinvested into Fund C which earns 5% effective. a. find the total accumulated value in Funds A, B and C combined at the end of 10 years. b. find the overall yield rate achieved by the investor.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Topic: Yield Rates

An investor makes a single deposit of 10,000 into fund A for 10 years which earns a 6% effective rate of interest payable directly to the investor each year. During the first 5 years, the interest payments can only be reinvested into Fund B which earns 4% effective over the entire 10-year period. During the second 5 years, the interest payments can only be reinvested into Fund C which earns 5% effective.


a. find the total accumulated value in Funds A, B and C combined at the end of 10 years.
b. find the overall yield rate achieved by the investor. 

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