Homework Answers
Quarterly (nominal) interest rate = 12%/4 = 3%
Since we need to compute amount of money at end of year 2 (quarter 8), we ignore the cash flows after quarter 8.
Money at end of year 2 (quarter 8) = 1000 x F/P(3%, 8) + (950 - 600) x F/P(3%, 7) + 1150 x [F/P(3%, 6) + F/P(3%, 5) + F/P(3%, 4) + F/P(3%, 3)]
= 1000 x 1.2668** + 350 x 1.2299** + 1150 x (1.1941** + 1.1593** + 1.1255** + 1.0927**)
= 1266.8 + 430.47 + 1150 x 4.5716
= 1697.27 + 5257.34
= 6954.61
Cash flow diagram (values in $):
**From F/P factor table
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