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Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an...

Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years, and 6.5%, compounded annually, for the last five years.

Required: 1. a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10 years? 2. b) How much money do you have in your account today? 3. c) If you wish to have $85,000 now, how much should you have invested 15 years ago?

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Answer #1

1. a) Effective Annual Rate for the first 10 years is 8.16%

2. b) Total value of the depost Today is $64,927.09

3. c) Money Required now = $85,000

Value of the second deposit = $27,401.73

Adjusted Money Required = $85,000 - $27,401.73 = $57,598.27

So, let x be the investment 15 years ago.

Fifteen years ago, you should have invested $19186.45 to have $85,000 today

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