Question

You plan to make a total of 5 deposits of $100 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 12% but uses semiannual compounding. You plan to leave the money in the bank for 10 years. How much will be in your account after 10 years?

Answer 1

- Periodic semi-annual Annuity deposit at the beginning of each period = $100

Annuity will be deposited for 2.5 years(6 months*5 payments) after that for another 7.5 years account will only earn interest.

Calculating the Future Value at the end of year 10:-

Where, C= Periodic Payments = $100

r = Periodic Interest rate = 12%/2 = 6%

n= no of periods = 2.5 years*2 = 5

m = no of periods of interest = 7.5 years*2 = 15

Future Value ta the end of year 10 = $1432.02

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