1 Suppose you open a CD account that earns 5% annual interest compounded quarter

Question

1 Suppose you open a CD account that earns 5% annual interest compounded quarterly.
(a) Suppose you deposit $5,000 in the account. How long will it take until you have at least $8,000
in the account?
(b) Instead of depositiing a lump sum into the account, you decide to deposit $250 per quarter. How
long until you have $8,000 in the account?

2.  How much money do you need in a retirement account earning 8% annual interest compounded
monthly to be able to withdraw $2,500 per month for 30 years?

3.  Sally bought a new car by taking out a $12,000 car loan. The loan accrues 13% interest
compounded monthly. Sally decides she'll pay $500 a month into the loan. How long until the loan is
paid of ?

Explanation / Answer

PV= 5000

FV= 8000

RATe=5% (Annual) 5/4=1.25% Quaterly

FV=PV(1+R)^N

N= No Of Periods=37.83 Quaters

B) this is an Annuity

PMT=250

PV=0

FV=8000

Rate=1.25

N=27 quaters

2)

PMT=250 P.m

R=8% or 8/12 Monthly

N=30*12 =360

PV= 34070.87

3)

PMT= -500

PV=12000

FV=0

Rate= 13% or 13/12=1.0833

N=27.94 Months

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