Question

Your employer has agreed to make 80 quarterly payments of $400 each into a trust account to fund your early retirement. The first payment will be made 3 months from now. At the end of 20 years (80 payments), you will be paid 10 equal annual payments, with the first payment to be made at the beginning of year 21 (or the end of Year 20). The funds will be invested at a nominal rate of 8 percent, quarterly compounding, during both the accumulation and the distribution periods. How large will each of your 10 receipts be? $1,230.30 $5,688.45 $10,787.55 $15,542.70 $20,897 25

Answer 1

The correct answer is C

$10787.55

Since the amount is to be compounded quarterly

Time=20*4=80-1=79 (Since the payments are to ve made three months from now)

Rate=8%/4=2% to be compounded quarterly

Amount payable at the end of 20 years= 400(1+2/100)79

^=107875.5

^{10 receipts will be =107875.5/10=$10787.55}

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