Question

un ull years. Au aer y years! Exercise 5. If an investment company pays 9.1% compounded bi-weekly, how much must you deposit to have $4,500 after 4 years? And after 6 years?

Answer 1

(a) Let the amount deposited be P

Number of weeks in an year = 52

Number of bi weekly periods in an year = 52/2 = 26

Number of periods = n = 4*26 = 104 biweekly periods

Bi Weekly Interest Rate = r = 0.091/26

Future Value required = $4500

Hence, FV = P(1+r)n

=> P = FV/(1+r)ⁿ = 4500/(1+0.091/26)¹⁰⁴ = $3129

(b) Let the amount deposited be P

Number of weeks in an year = 52

Number of bi weekly periods in an year = 52/2 = 26

Number of periods = n = 6*26 = 156 biweekly periods

Bi Weekly Interest Rate = r = 0.091/26

Future Value required = $4500

Hence, FV = P(1+r)n

=> P = FV/(1+r)ⁿ = 4500/(1+0.091/26)¹⁵⁶ = $2609.17