Non Annual Compounding It is now January 1. You plan to make a total of 5 deposi

Question

Non Annual Compounding

It is now January 1. You plan to make a total of 5 deposits of $500 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 8% but uses semiannualcompounding. You plan to leave the money in the bank for 10 years.

How much will be in your account after 10 years? Round your answer to the nearest cent.

You must make a payment of $1,438.94 in 10 years. To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 14% with quarterly compounding. How large must each of the 5 payments be? Round your answer to the nearest cent.

Explanation / Answer

The future value after 5 deposits = $ 500 [ ( 1+(0.08/2))2x2.5 -1 ] / ( 0.08/2)

Future value after 5 deposits = $ 2,708.16

The value of money after 10 years = $ 2,708.16 [ (1 +(0.08/2))10x2 )

Value of money after 10 years = $ 5,933.91

_________________________________________________________________

$1,438.94 = A [ (1+(0.14/4))8.75x4 + A [ ( 1+(0.14/4)1.25x4 - 1 ] / ( 0.14/4)

A = $ 165.47

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