Question

In: Finance

You deposit $4,000 in the bank at the end of each year for 30 years. If...

You deposit $4,000 in the bank at the end of each year for 30 years. If the bank pays interest of 5.25% per annum, what amount will you have accumulated if interest is compounded:

a. Annually

b. Semi-Annually

c. Quarterly

d. Monthly

e. Daily

Please show all your work and explain your answers.

Expert Solution

Answer:

First we need to calculate effective annual interest rate (EAR):

EAR = (1 + I / N) ^N - 1

I = Annual rate of interest

N = Number of compounding periods per year

Then we calculate accumulated amount using formula = PMT * ((1 + EAR) ^T - 1) / EAR

Where:

PMT = Annual deposit at the end of year

EAR = Effective annual interest rate

T = Time period (in Years)

Accumulated amounts are calculated and given below:

The above excel with 'show formula' is given below:

jeff jeffy answered 1 year ago

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