Question

In: Finance

4.(a) Sarah has decided to deposits $20 per month into a savings account that pays interest...

4.(a) Sarah has decided to deposits $20 per month into a savings account that pays interest at a rate of 2.2% per year, compounded semi-annualy.How much she has deposited over 5 years? How much will she have at the end of 5 years?

(b) On the top of her savings, end the end of every year, Sarah receives gift from her grandfather at the amount of $200. How much will she have at the end of 5 years?

(c) Continue with part a). If Sarah wants to be a millionaire in 10 years,how much she has to save every day if the annual interest rate is 2.2%compounded semi-annually?

Solutions

Expert Solution

Here the interest is compounded semi annually but periodic payments are monthly, yearly and daily.

Hence, effective interest rate has been computed and corresponding rate has been used in the formula.

Number of days is assumed to be 365.

Formulae are provided for ease of reference.


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