Mark intends to deposit $300 per year for the next 10 years in an account that pays 8% annual interest. Determine the total return, principal, and interest of each investment and assume all deposits are made at the end of each period.
A. $300 is deposited annually (6 points)
B. $150 is deposited semiannually (6 points)
C. $75 is deposited quarterly (6 Points)
D. How does increasing the frequency of compounding impact the total return? (2 Points)
A. If $300 is deposited annually at the end of each year for 10 years, results are-
| Total return | Principal | Interest |
| $4,345.97 | $3,000 | $1,345.97 |
B. If $150 is deposited semi-annually at the end of each period for 10 years, results are-
| Total return | Principal | Interest |
| $4,432.89 | $3,000 | $1,432.89 |
C. If $75 is deposited quarterly at the end of each period for 10 years, results are-
| Total return | Principal | Interest |
| $4,476.35 | $3,000 | $1,476.35 |
D. Since, the more frequently or early the amount get invested it fetched more return which gets compounded anually for the future years they remain invested. This procedure of interest on interest is the power of compounding which increases the return on investments. You may see above results how more frequent and early investments fetched interest which gets compounded and fetched more total returns.
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