Question

You decided to quit smoking today.

Now that you are going to save 180 €/month, you decided to save those 180€ per month in a bank account that offers a 3.5% interest rate compounded monthly, till the day you retire (that is to say, in 25 years). Please answer the following questions

1. If you decide to do your deposits at the beginning of every month (so your first deposit will be done today) in a bank account that offers a 3.5% interest rate compounded monthly, and you continue doing so till the day you retire (that is to say, in 25 years):

1. Draw the timeline (at least the first five periods) with its corresponding numeration of periods and cashflows in their corresponding points                                                                                                                                                                                                                                                                                                 (10 points)

2. What is the difference between this case and the previous one?                                                                                                                                 (10 points)

3. According to your opinion, what is it better? To bring the amounts to the bank at the beginning of every month (as described in this ex.) or at the end of every month (as described in the previous ex.)? Explain the reason                                                                                                                  (10 points)

4. How much money will you have at the end? Show the workout                                                                                                                                  (10 points)

Answer 1

This is the timeline for Case 1, annuity at the end

This is timeline for Case 2 - Annuity at beginning and difference between both cases

This lays down the evaluation as to which option is better and the future value in both the cases