Question

You have a very good salary and a smart investment manager. She tells you that in only 6 years you can accumulate $688,530 from quarterly deposits of $20,000 into an account that has a historical return of 12% per year compounded quarterly. It seems like a “stiff" commitment, but one worth trying as you prepare for an early retirement from your current defense contractor engineering job. NOTE: This is a multi-part question. Once an answer is submitted, you will be unable to return to this part. You are a cautious investor. Suppose the market does not perform as your investment manager predicts and the return is only 50% of what she predicted. What is the future value of your quarterly deposits? The future value of the quarterly deposits is $ 572670.42

Answer 1

Compound interest formula: A = P(1 +5)nt n Time period = 6 years Quarterly deposits = $20,000 Interest rate = 6% [50% of 12%] Compounding interval = Quarterly Interest Year Begin 1 2 3 4 5 6 Totals Deposit 0.00 80,000.00 80,000.00 80,000.00 80,000.00 80,000.00 80,000.00 480,000.00 2,227.16 7,272.91 12,628.28 18,312.28 24,345.07 30,748.06 95,533.77 Balance 0.00 82,227.16 169,500.07 262,128.35 360,440.63 464,785.71 575,533.77 575,533.77 (Here, I have calculated interest on yearly deposits that is $20,000*4 and then applied compound interest formula for which yearly deposits varying no. of years) If you start with zero balance, earning a 6% interest rate compounded quarterly and makes $20,000 deposits on a quarterly basis, after 6 years your savings account will have to grown to $575533.77 of which $95533.77 is the total interest earnings.