Question

Ch 05: End-of-Chapter Problems - Time Value of Money < Back to Assignment Q Search this course Attempts: Keep the Highest 1/2 12. Problem 5.36 Click here to read the eBook: Future Values Click here to read the eBooks Present Values Click here to read the eBook: Semiannual and Other Compounding Perio NONANNUAL COMPOUNDING a. You plan to make five deposits of $1.000 each one every 6 months, with the first payment being made in 6 months. You more deposits. If the bank pays 7 nominal terest compounded semiannually, how much be in your counter answer to the nearest cent. theme GAGE UNLIM b. One year from today you must make a payment of 13.000. To prepare for this payment, you plan to make end of Quarters 1 and 2) in a bank that pays 7 nominal interest compounded quarterly. How large must each of the your answer to the nearest cent. below Continue without

Answer 1

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Answer(a):

Given 7% nominal rate => 3.5% rate per 6 months

6 months for 3 years => 6 payments

Amt = $1,000 (1+ 0.035)⁵ + $1,000 (1+ 0.035)⁴+ $1,000 (1+ 0.035)³ + $1,000 (1+ 0.035)²⁺ $1,000 (1+ 0.035)

= $1,187.69 + 1,147.52 + 1,108.72 + 1,071.23 + 1,035

= $5,550.16

Answer(b):

Consider the amount of each of payment be "P".

Now, $13,000 = P (1 + 0.0175)³ + P (1 + 0.0175)²

or,$13,000 = 1.0534 P + 1.0353 P

or, P = $13,000 / 2.0887

or, P = 6223.95 (Approx)