Question

You wish to accumulate a total of $ 61,026 for a special purpose exactly 14 years from now. You will make depositsquarterly, with the first one exactly 7 quarters from now and the last one exactly 14 years from now. The savings rate is 8.65 % compounded quarterly.  How much total interest does the bank contribute towards your accumulation?

Answer 1

Basically in 1 year there are 4 quarters so in 14 years there will be 14 x 4 = 56 quarters

So if we have to reduce 7 quarters, then remaining quarters are 56-7 =49, which implies that we have a 49/4 = 12.5 years of compounding period

We are given the following information:

Payment	PMT	To be calculated
Rate of interest	r	8.65%
Number of years	n	12.25
Frequency is quarterly	T	4
Ammount to be accoumulated	FV	$            61,026.00

We need to solve the following equation to arrive at the required PMT

So the quarterly payment is 712.23

There were 49 payments so total payments made were 712.23 x 49 = 34899.48

The rest of the FV is due to interest received from the bank

So interest amount = FV - 34899.48 = $26,126.52