You deposit into a savings account $4,000 now and $2500 three years from now. Then, the...

You deposit into a savings account $4,000 now and $2500 three years from now. Then, the next year you withdraw $1000 and another $1000 the following year. Then, you get a bonus from your company and deposit $2,000 at the end of year 6, and make no deposits or withdrawals the rest of the planning horizon. The interest rates are 4% during the first two years, then drops to 3% during the following three years, and then to 2% until the end of year 8. How much will be the balance of account at the end of year 8?

Expert Solution

FW of account = 4000*(F/P,4%,2)*(F/P,3%,3)*(F/P,2%,3) + 2500*(F/P,3%,2)*(F/P,2%,3) + 2000*(F/P,2%,2) - 1000*(F/A,4%,2)*(F/P,3%,3)*(F/P,2%,3)

= 4000*1.0816* 1.092727*1.061208 + 2500*1.069*1.061208 + 2000*1.0404 - 1000*2.0400* 1.092727*1.061208

= 7568.21

Rahul Sunny answered 2 years ago

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