Question

what monthly deposit would be equivalent to a deposit of 600 every 3 months for 2 years if the interest rate is 6% per year compounded semiannually? assume simple interperiod interest on the 600 deposits only? please include the computation for FV please

Answer 1

A deposit of 600 is made every 3 month period for a total of 24/3 = 8 periods. The rate of interest is 3% per half year or 1.5% per period of 3 months. Effective rate per period is (1 + 6%/4)^2 - 1 = 1.5112%

Find its future value after 8 periods (2 years) = 600(F/A, 1.5112%, 8) = 600*8.436184 = $5061.71

Effective monthly rate is ((1 + 6%/12)^6 - 1)/6 =  0.502692%

Now find the annual equivalent cost = 5061.71(A/F, 0.502692%, 24) = 5061.71*0.0392917 = 198.88