Question

You will deposit $1,200 at the beginning of every four years for 20 years.

If the effective rate of interest is 6%, how much will you accumulate at the end of the 20 year period?

A. 10,091

B. 11,515

C. 12,739

D. 13,939

E. 14,776

Answer 1

Deposit made every 4 years (PMT) = $1,200

No of deposits made (N) = 5

Effective rate of interest per 4 years (i) = (1+0.06)4 - 1 = 26.2477% per 4 years

Future Value (FV) = PMT [(1+i)n -1]/i x (1+i)

Future Value (FV) = 1200 [(1+0.262477)5 -1]/i x (1+0.262477)

Future Value (FV) = 1200 x 8.4089 x (1+0.262477)

Future Value (FV) = $12,739

Therefore amount accumulated at the end of the 20 year period = $12,739

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