Question

1. You want to get $20,000 in your account 8 years from now. What is the money to be deposited in your current account, if the bank provides compound interest of 12% per year?


2. It is assumed that you deposit $1,000 now, 2 years to come, 4 years to come, 6 years to come and 8 years to come. Compound interest of 8% per year is given in this deposit. Determine the value of your deposit at the end of the 9th year?


3. What is the payment at the end of the 5th year that has the equivalent value of the annual series with a payment of $600 starting at the end of the 3rd year, and ending at the end of the 12th year. Compound interest rate is 10% per year.

Answer 1

1) Desirable amount after 8 years = $20,000

Compound Interest = 12% per year

Let say you deposit X now.

20,000 = X * (1 + 0.12)^⁸

X = 8,077.66

2) 1,000 is deposited now. Its future value at the end of 9 year is 1,000 * (1 + 0.08)^⁹ = 1,999

1,000 is deposited 2 years from now. Its future value at the end of 9 year is 1,000 * (1 + 0.08)^⁷ = 1,713.82

1,000 is deposited 4 years from now. Its future value at the end of 5 year is 1,000 * (1 + 0.08)^⁵ = 1,469.32

1,000 is deposited 6 years from now. Its future value at the end of 3 year is 1,000 * (1 + 0.08)^³ = 1,259.71

1,000 is deposited 8 years from now. Its future value at the end of 9 year is 1,000 * (1 + 0.08)^¹ = 1,080

Sum of future value at the end of 9 years = 7,521.84