Question

1. You want to deposit amounts in the bank at the end of 2011, 2012, 2013...

1. You want to deposit amounts in the bank at the end of 2011, 2012, 2013 and 2014, so that you have $1259.71 in your account on 1 January 2015. Calculate how large each of your payments would need to be if the bank compounds quarterly at 8% p.a. Show your calculation

2. If a term deposit paid an interest rate of 24% p.a. over the past six months, and the current balance is $1008, what was the amount initially invested? Show your calculation

Homework Answers

Answer #1

1. Effective annual rate, r = (1 + 0.08/4)^4 - 1

r = 0.08243216

FV = 1259.71

n = 4 yearly payments

Each payment should be $278.5531066575

2. PV = FV/(1 + r)^n

r = 24%/2 = 12% for 6-months

n = 1 six-month period

PV = 1008/(1 + 0.12)^1

PV = $900

The initially invested amount is $900

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