1. Today you opened up a local bank account. Your plan is make five $1,000 contr

Question

1. Today you opened up a local bank account. Your plan is make five $1,000 contributions to this account. The first $1,000 contribution will occur today and then every six months you will contribute another $1,000 to the account. (So your final $1,000 contribution will be made two years from today). The bank account pays a 6% nominal annual interest, and interest is compounded monthly. After two years, you plan to leave the money in the account earning interest, but you will not make any further contributions to the account. How much will you have in the account 8 years from today? $7,092 $7,569 $7,609 $7,969 $8,070

Explanation / Answer

Ans) The five contributions to the bank is = 1000*5 = $5000

We have Formula

A = P( 1 + r/n ) ^ tn

Where A = future value of loan

P = principal investment

r = annual interest rate

n = no of times the interest is compounded

t = no of years

By substituting values

A = $5,000( 1 + 6%/12 )^8*12

= $5,000( 1 + 0.005 )^96

= $5,000 * (1.005)^96

= $5,000 * 1.61414

= $8,070.07

ie, option 5

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