er will deposit $1,100 into an account every six months for 15 years. The first
ID: 2819332 • Letter: E
Question
er will deposit $1,100 into an account every six months for 15 years. The first deposit will be 20 years from today. Assume an 7. Tyle ade six months from todlay. The account will be worth S interest rate of 12% pa, compounded semi-annually. a. 155,739.29 b. 171,581.17 e. 198,21364 d. 204,400.53 e. 221,818.66 Brandon wants to double his money in & years, To do so, he must invest in an account that earns 8. % p.a. compounded quarterly a. 5.466 h6,992 e 7.675 d. 8.759 e 9.759 9 A bank offers 8% APR on saving accounts, what is the effective annual rate (EAR) if the interest is compounded monthly? (Formula: EAR (1+APR/m)m-1) A. 5.095% B. 6.116% C. 7.062% / D. 8.300% E. 9.381%Explanation / Answer
7. Computation of Future Value after 20 years
a. Computation of Future Value at the end of 15 years
Future Value = Installment * FVAF (6%, 30 periods)
Future Value = 1100 * 79.05819
Future Value at the end of year 15 = $86964.009
b. Computation of Future Value at the end of 20 years
Future Value = Future Value at the end of year 15 * (1+r)^n
Future Value = 86964 * (1+0.06)^10
Future Value = $155739.29 (Option A)
8. Computation of Interest Rate
Future Value = Present Value * (1+r/4)^n
2 = 1 * (1+r/4)^32
1.021897 = 1 + r/4
0.021897 = r/4
r = 0.021897 * 4 = 8.759% (Option D)
9. Effective Interest Rate
Effective Interest Rate = (1 + r/12)^12 - 1
Effective Interest Rate = (1 + 0.08/12)^12 - 1
Effective Interest Rate = 1.083 - 1 = 0.083
Effective Interest Rate = 8.30% Option D
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