Question

Suppose that you can invest funds into a savings account that earns 1.75% per quarter, for five years and thereafter into a fund that earns 12% per annum, compounded monthly, for a further 5 years. If you require 300 000 at the end of the 10 year period, how much money must you invest tomorrow?

Answer 1

Calculation of money to be invested tomosow let the money to be invested be & A a fund years. Now, this money (&A will be invested in that will earn 1.75% per quarter for five This means (For first 5 years Rate = 1.75% per quarter Number of periods = 5x4 = 20 After 5 years, the amount will earn 12% per annum for 5 years. . Rate (per month since compounding is monthly = 1% (12 / Number of periods = 5x12=60 Amount at end of 10 years = 3,00000 Thus, Number of (It Rate for first 5 years periods X AX The (It Pecices Rate for next 5 years) . Rate for next 5 years) = 300,000 A x (1+1-75%)*x (1+1-1) = 300,020 - Ax (1.0135)2ºx (1+0.01."9= 300,000 Ax (1.017530 (1.00"> 300,000 Ax 1.414778 x 1.816696= 300,000 AX 2.5702215 = 309,000 A = 300 000 $ 116, 721.45 2.5702215 Amount to be invested tomossion is $116, 721.45