Question

Deposits of $1500 are made every 3 months starting today, October 5, 2006.  The final deposit is made on January 5, 2011.  If the fund earns j₄ = 8%, how much is in the fund immediately after the deposit on January 5, 2011?  

Answer 1

There will be a total number of 18 payments between October 5, 2006, and January 5, 2011

Now we to find the effective annual rate which is being compounded quarterly at 8%

EAR = ((1+(Interest rate/Number of periods))^Number of periods  - 1

EAR=  [(1+(8%/4))^4] - 1

EAR = 8.24%

We will find the Future vale of all the payments using a BA 2 plus financial calculator:

I/Y ( Interest per period) =8.24%/ 4 = 2.06%

PMT (Deposits per period) = $1500

N(Number of periods) = 18

CMPT FV

Fund immediately after the deposit on January 5, 2011 = $32,289.66