Question

It is now January 1. You plan to make a total of 5 deposits of $150 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 4% but uses semiannual compounding. You plan to leave the money in the bank for 10 years. How much will be in your account after 10 years?

Answer 1

Sol - The calculation of the above problem is given as follows -

Total amount after 5 deposits ( that is 2 year and 6 months)

Amount = Principal[{ 1+r}^n - 1]/ rate

Rate = 4% and on semi-annual it will be 2% that is 0.02

N = 2.5 Years * 2 = 5

Amount = $150*[{1+0.02}^5-1/0.02

= $150 * 1.1040808032 - 1 / 0.02

= $150 * 0.1040808032 / 0.02

= $150 * 5.20404016

= $780.60

Leave $780.60 amount in bank for 10 years that is 10 semi annual period

Amount = $780.60 (1+0.02)^20

= $780.60 *(1.02)^20

= $780.60 *1.485947396

= $1159.93

Therefore, the answer to this problem is $1159.93

answered by: anonymous