Question

In: Finance

Assume that 1 year from now you plan to deposit $1000 in savings account that pays...

Assume that 1 year from now you plan to deposit $1000 in savings account that pays a nominal rate of 8 %.

a) If the bank compounds interest annually, how much will you have in your account 4 years from now?

b) What would your balance be 4 years from now if the bank used quarterly compounding rather than annual compounding?

Solutions

Expert Solution

n = 3 years as it is said after one year you plan to deposit means after one year only 3 year will be left (4-1)

a) Amount in account after 4 years = Deposit * FVF@8%,3

= $1000 (1 + 0.08)^3

= $1000*(1.08)^3

                                      = $1000 * 1.25971

                                      = $ 1259.71

b) Number of quarters [4quarters in a year ] = 3 *4 = 12                     

quarterly rate = 8 /4 = 2%

Amount in saving account = Deposit *FVF@2%, 12

= $1000*(1+0.02)^12

= $1000*(1.02)^12

= $1000 * 1.26824

                                        = $ 1268.24

Please give thumbs up. It will help me.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

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...
You deposit $1,500 into an account that pays 4% per year. Your plan is to withdraw...
You deposit $1,500 into an account that pays 4% per year. Your plan is to withdraw this amount at the end of 5 years to use for a down payment on a new car. How much will you be able to withdraw at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent.
5. You plan to deposit $500 into a bank account now (year 0), $300 in year...
5. You plan to deposit $500 into a bank account now (year 0), $300 in year 2, and $1000 in year 4. How much money will be in your account in year 7, if the annual interest rate is 5%? a. 2,345 b. 2,244 c. 2,175 d. 2,500 6. If the interest rate is 6.5%, calculate the present value of $5000 paid annually over the next 25 years a. 69,899 b. 65,798 c. 60,898 d. 60,989
Starting next year you plan to deposit $1000 each year into an account earning 9.25% effective...
Starting next year you plan to deposit $1000 each year into an account earning 9.25% effective annual return. How many years will it take for your account to grow to $20,000, if you increase your deposit each year by 5%? (Hint: use excel goal seek). Enter answer in years, rounded to the nearest first decimal, as in "4.6" years
Starting next year you plan to deposit $1000 each year into an account earning 9.25% effective...
Starting next year you plan to deposit $1000 each year into an account earning 9.25% effective annual return. How many years will it take for your account to grow to $20,000, if you increase your deposit each year by 5%? (Hint: use excel goal seek). Enter answer in years, rounded to the nearest first decimal, as in "4.6" years
Starting next year you plan to deposit $1000 each year into an account earning 9.25% effective...
Starting next year you plan to deposit $1000 each year into an account earning 9.25% effective annual return. How many years will it take for your account to grow to $20,000, if you increase your deposit each year by 5%? (Hint: use excel goal seek). Enter answer in years, rounded to the nearest first decimal, as in "4.6" years
Suppose that you deposit $1,000 in a savings account at Wells Fargo and plan to leave...
Suppose that you deposit $1,000 in a savings account at Wells Fargo and plan to leave your principal and any interest in the account for four months. The interest rate in the first month is 2%; in the second month, 2%; in the third month, 1%; and in the fourth month, 2%. What is the future value of your account at the end of the holding period? Do not round at intermediate steps in your calculation. Round your final answer...
You plan to deposit $5,500 into a savings account. There are five great banks in your...
You plan to deposit $5,500 into a savings account. There are five great banks in your town offering terrific interest rates. If your goal is to earn the greatest amount of interest, which bank should you choose? Please explain why. Bank KLM: 3.66% compounded continuously Bank HIJ: 3.71% compounded semi-annually Bank DEF: 3.70%, compounded monthly Bank XYZ; 3.64% compounded quarterly Bank ABC: 3.74%, compounded annually
You open a savings account that pays 1.2% and make 15 end-of-year deposits. Your first deposit...
You open a savings account that pays 1.2% and make 15 end-of-year deposits. Your first deposit is $500 at the end of year 1 and deposit amounts increase at a rate of $100 per year. How much will you have in the account immediately after the 15th deposit? by excel preferably
2. Suppose you decide to deposit $14,000 into a savings account that pays a nominal rate...
2. Suppose you decide to deposit $14,000 into a savings account that pays a nominal rate of 15.60%, but interest is compounded daily. Based on a 365-day year, how much would you have in your account after four months? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) $14,303.99 $14,451.45 $14,746.38 $15,041.31 3. In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT