Question

A) If $8000 is deposited at the end of each half year in an account that earns 6.8% compounded semiannually, after how many half years will the account contain $100,000? (Round your answer UP to the nearest half year.)
half years=  

B)

A young executive deposits $200 at the end of each month for 4 years into an account that earns 7.2% compounded monthly. How much is in the account after the 4 years? (Round your answer to the nearest cent).

$

The executive then changes the deposits in order to have a total of $400,000 after 25 total years. What should be the revised monthly payment in order to meet the $400,000 goal? (Round your answer to the nearest cent).

$

How much interest is earned during the 25 years?

$

Answer 1

A) Amount deposited every half year =$8000

Interest = 6.8% compounded semiannually

So, semi annual interest = 3.4%

Future value = $100,000

So, Time taken to achieve the future value = Using excel NPER function

Syntax: NPER(semi annual rate, semi annual deposit, ,future value,0)

NPER(0.034, -8000, , 100000,0) = 10.59

So, Semi Annual years required = 11 (rounding off)

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B)Monthly deposit =$200

Time =4 years

Monthly period =4*`12 =48

Interest =7.2%

So, monthly rate =0.072/12 = 0.60%

Now, future value = Using excel FV function

Syntax: FV(monthly rate,monthly period,monthly deposit, ,0)

FV(0.0060,48,-200, ,0) = 11,087.00

So, the future value at the end of 4 years = $11,087.00

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C)Now, if the future value = $400,000

Time =25 years or 25*12 = 300 periods

Monthly rate = 0.60%

Monthly deposits = Using excel PMT function

Syntax: PMT(monthly rate,monthly period, ,future value,0)

PMT(0.0060,300, , 400000,0) =478.35

So, monthly deposits = $478.35