Your friend is considering two different savings plans. Plan 1: She deposits $ 5

Question

Your friend is considering two different savings plans. Plan 1: She deposits $ 500 every 6 month at 7% annual interest rate compounded semi-annually. Plan 2: She deposits $ 1,000 every year at 7.5% interest compounded annually. The initial deposit for plan 1 is made 6 months from now, and for plan 2, the initial deposit is made 1 year from now.

a) What is the future value of the first plan at the end of 10 years?

b) What is the future value of plan 2 at the end of 10 years?

c) Which plan should she use if her only concern is the value of her savings at the end of 10 years?

d) Would your answer change if the interest rate on the second plan was 7%?

Explanation / Answer

Hello Pal,

First of all a very nice as well as intersting question from your side.

So now straight to the question, as asked above with all the information available from your side and from mine, the answer is as under:

After calculation of the above given information, we can conclude that the answer will be as under:

a) $10700.

b) $10750.

c) Plan 2.

d) No, will remain the same.

That is all I can say from the above given information by you, hope have solved your problem to some extent.

Regards.

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