Question

Suppose that you are the manager of a newly formed retirement fund. You are to set up a series of semiannual payments to accumulate a sum of $1,000,000 in ten years. You assume that the appropriate interest rate for the period is 6 percent annual, compounded semiannually. The first payment into the fund will be made six months from today and the last payment will be at the end of the tenth year. Note: this problem is meant to make sure you understand the inputs. N = the number of payments (not years) I = interest rate per period not year. (the semi-annual interest rate)

How much would be in the retirement fund at the end of the sixth year, to the nearest dollar?

Group of answer choices

$528,166

$500,000

$259,591

$559,335

Assume that the semi-annual payment needed to reach the $1M goal is $45,000. If interest rates rise to a rate 9 percent annually after the 4th year and this increase is expected for the remainder of the period. Which of the following statements is true.

Group of answer choices

Due to the increase in interest rates, the semi-annual deposits could decrease because the money in the fund is now growing faster.

Due to the increase in interest rates, the semi-annual deposits should increase because larger deposits are needed to offset the effect of higher interest rates

The change in the interest rate will not have an affect on the amount of the deposit needed to reach the retirement fund goal.

Answer 1