Question

The effective interest rate is 19.76% for 28 months. If interest is compounded every two months, calculate the effective interest rate per six months.

Answer 1

1.

We can calculate the effective rate from the below formula:

Given the periodic nominal rate r compounded m times per per period, the equivalent periodic nominal rate i compounded q times per period is
i=q×[(1+r/m)^mq?1]

First we have to calculate annual effective rate from the given rate which is compunded every two months,
using the above formula (or use the financial calculator), we get the annual effective rate as 21.4601%

Now, we convert the annual rate to semi annual compounding, we get the rate as 20.4179%

2.

Assuming we do not spend any money; the entire amount is invested at 8%p.a.; and the income grows at 3.1%
using excel, we can calculate the total amount, which comes out to be

4,655,698.80

WRITE IN YOUR INPUT IN THIS SHEET AND THEN GO TO OTHER SHEET TO VIEW RESULT Aan)y 27 60 80 85,000.00 310% 0.00 0% 0.00 8.00% 0.00% 6 b. Retirement age 7 d. Life expectancy 8 Current annual income 9 Expected growth in income p.a 10 Current annual expense 1rfllkai 13 Return on investment p.a. during accumulation of corpus 14 Return on investment p.a during distribution of corpus 15 inflation pa

KEY POINTS IN INCOME REPLACEMENT ANAYLSIS 3 a. Current Age 4 b. Retirement age 5 C. No. of years left for retirement RETIREMENT CASE STUDYISBS5 RETIREMENT CASE STUDY'ISB$6 B4-B3 7 d. Life expectancy 8 e. Years after retirement RETIREMENT CASE STUDYISB$7 B7-B4 TIREMENT CASE STUDY ISBS RETIREMENT CASE STUDY'ISBS9 FV(B11B5,, B10 10 Current annual income Annual income at retirement age 13 12 4 Return on investment p.a on accumulation of retirement corpus Return on investment p.a, on distribution of retirement corpus 16 Inflation pa RETIREMENT CASE STUDY!SB$13 RETIREMENT CASE STUDY'ISB$14 RETIREMENT CASE STUDYISB$15 Inflation adjusted rate of return -(1+B15 (1+B16)-1 19 Retirement Savings 20 -PV(B17,B8,-B12,,1 Monthly saving 21 Yearly Saving PMT(B14/12,B5*12.,-B19 PMT(B14B5-B19

KEY POINTS IN INCOME REPLACEMENT ANAYLSIS 3 a. Current Age 4 b. Retirement age 5 C. No. of years left for retirement 27 60 7 d. Life expectanc 8 e Years after retirement 80 20 10 Current annual income 11 Expected growth in income p.a 12 Annual income at retirement age 13 14 Return on investment p.a. on accumulation of retirement corpus 15 Return on investment p.a. on distribution of retirement corpus 16 Inflation pa 17 Inflation adjusted rate of return 18 19 Retirement Savings 20 Monthly savin 21 Yearly Savinn 85,000.00 310% 232,784.94 8.00% 0.00% 0% 0.00% 4,655,698.80 2,408 31 89