Question

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

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