a. You plan to make 5 deposits of $1,000 each, one every 6 months, with the firs

Question

a. You plan to make 5 deposits of $1,000 each, one every 6 months, with the first payment being made in 6 months. You will then make no more deposits. If the bank pays 4% nominal interest, compounded semiannually, how much would be in your account after 3 years?

Round your answer to the nearest cent.

b. One year from today you must make a payment of $5,000. To prepare for this payment, you plan to make 2 equal quarterly deposits, at the end of Quarters 1 and 2, in a bank that pays 4% nominal interest, compounded quarterly. How large must each of the 2 payments be?

Round your answer to the nearest cent.

Explanation / Answer

a) Amount = 1000 * (1.035^2.5 + 1.035^2 + 1.035^1.5)= 3213.99 (First amount being paid at the end of 6 months will compound for 2.5 years and so on) b) Let the amount be A Therefore A * (1.0175^3 +1.0175^2) = 10000 ( First amount will compound for 3 quarters) A = 4787.60

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