Question

1.You are going to deposit $2,800 in an account that pays .54 percent interest compounded quarterly. How much will you have in 8 years?

2.You have $5,000 and will invest the money at an interest rate of .21 percent per month until the account is worth $9,800. How many years do you have to wait until you reach your target account value?

3.You have just started a new job and plan to save $4,500 per year for 40 years until you retire. You will make your first deposit in one year. How much will you have when you retire if you earn an annual interest rate of 10.52 percent?

4. Fifth Fourth National Bank has a savings program which will guarantee you $18,500 in 11 years if you deposit $125 per month. What APR is the bank offering you on this savings plan?

Answer 1

1. Effective quarterly rate = 0.54%/4 = 0.135%

FV8 = 2,800 * (1 + 0.00135)^(8*4)

FV8 = $2,923.5255946676

2. FV = 9,800

PV = -5,000

I/Y = 0.21

PMT = 0

Compute N

N = 320.7861038 months

You will have to wait 320.7861038/12 = 26.7321753167 years for the deposit to grow to $9,800

3.

4. N = 11 * 12 = 132

PMT = -125

FV = 18,500

PV = 0

Compute I/Y

I/Y = 0.171563981

APR = 0.171563981% * 12

APR = 0.02058767772

APR = 2.058767772%

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