Question

Now we come to Harry's interest in cars. As explained in the scenario (see assignment document), Harry's weekly repayments on a new Porsche would be $399 per week. If he puts the $399 per week into a managed fund earning 5% p.a., how much would he have at the end of 5 years? Assume weekly compounding.

Select one:

a. $186,528

b. $103,740

c. $117,795

d. $189,023

e. $110,433

Answer 1

When the frequency of compounding is more than 1
in a year, the FV of the payments [annuity] will be:
FV = 399*((1+0.05/52)^260-1)/(0.05/52) =	$      1,17,795
Answer: [c] $117,795
NOTES:
The weekly interest rate, r = 0.05/52, number of weeks =
52*5 = 260.
The Formula used is the formula for finding the FV of
annuity.
FVA = A*[(1+r)^n-1]/r
where A = Weekly payment of $399
r = Interest rate of [in decimals] 0.05/52
and n = 260