Question

8. You deposit $1000 in an account today You will deposit $600 at the end of each month for the next twelve months and $800 per month for the following twelve months. How much interest will you have earned in two years in the account pays 5.5% compounded monthly?

Answer 1

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

? = ((1+5.5/(12*100))^12-1)*100

Effective Annual Rate% = 5.6408

Future value = present value*(1+ rate)^time

Future value = 1000*(1+0.056408)^2

Future value = 1116

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 600*(((1+ 5.5/1200)^(1*12)-1)/(5.5/1200))

FV = 7384.3

Future value = present value*(1+ rate)^time

Future value = 7384.3*(1+0.056408)^1

Future value = 7800.83

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 800*(((1+ 5.5/1200)^(1*12)-1)/(5.5/1200))

FV = 9845.74

total = 9845.74+7800.83+1116

=

18762.57