quarterly at the rate of 23% per quarter? Arts. 31 On the first day of the year,

Question

quarterly at the rate of 23% per quarter? Arts. 31 On the first day of the year, a man deposits S1000 in a bank at 8% per year, compounded annually. He 00 at the end of the first year. $20.00 at the end of the second year. and the remaining balance at the end of the third year. (a) How much does he withdraw at the end of the third year? (b) What is his net cash flow? (c) How much better off, in terms of net cash flow, would he have been if he had not made the withdrawals at the ends of years one and two? (a) $1069.19; (b) $239.19, (c) $20.51

Explanation / Answer

a. At the end of 1st year the man will have : 1000*1.08 - 80 = 1000
At the end of 2nd year the man wil have : 1000*1.08 - 90 = 990
At the end of 3rd year the man can withdraw the amount of 990*1.08 = $1069.19

b. The net cash flow is total cash withdrawn - total invested = 1069+80+90 - 1000 = $239.19

c. If he hadn't withdrawn in-between he would have =$1000*1.08^3 =$1259.712, net cash flow would have been
= $1259.712 - $1000
= $259.712, which is more than the previous cash flow by $259.12-$239.12 = $20

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