An investor makes deposits twice a month into a fund paying interest at j₄ = 6.5%.At the time of the 80^th deposit,she wishes to have $100,000.What deposit is needed?

Question

Quizplus · Accepted Answer

The interest rate j4 = 6.5% is a nominal rate compounded quarterly. To find the effective rate per period (half a month), we convert it to an effective semi-annual rate and then find the equivalent rate for half a month. Using the future value of an ordinary annuity formula, we solve for the deposit amount needed to reach $100,000 by the 80th deposit. The correct deposit amount is $1121.99.

An Investor Makes Deposits Twice a Month into a Fund