Non Annual Compounding a. It is now January 1. You plan to make a total of 5 dep

Question

Non Annual Compounding

a. It is now January 1. You plan to make a total of 5 deposits of $600 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 10% 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? Round your answer to the nearest cent.

b. You must make a payment of $1,751.87 in 10 years. To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 8% with quarterly compounding. How large must each of the 5 payments be? Round your answer to the nearest cent.
$  

Explanation / Answer

Answer:a

Here,   Number of deposits (n) = 5 deposits;

             Semiannual (every 6 months), payment = 600;

             Nominal interest rate (i) = 10%,

             Present value of annuity (PVA) = ?

We have,

             FVA = PMT

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