a) Determine the required size for the monthly deposit, R. Apply a sanity check. b) Construct a sinking fund table showing 24 deposits with a fixed interest rate of 5.5%. Describe and apply a sanity check to your table. c) Suppose that the interest rate is renewed every three months (quarterly) over the course of the two years as follows: Year 1 01 5.5% Q2 03 2.8% 4.5% 04 01 4.0% 4.2% Year 2 02 04 Q3 3.8% 2.5% 7.5% If you maintain the same monthly deposit of R determined in part a), find the size of your sinking balance after two years. Will you meet your target of $20,000? Describe and apply a sanity check for your answer.
a) Determine the required size for the monthly deposit, R. Apply a sanity check. b) Construct a sinking fund table showing 24 deposits with a fixed interest rate of 5.5%. Describe and apply a sanity check to your table. c) Suppose that the interest rate is renewed every three months (quarterly) over the course of the two years as follows: Year 1 01 5.5% Q2 03 2.8% 4.5% 04 01 4.0% 4.2% Year 2 02 04 Q3 3.8% 2.5% 7.5% If you maintain the same monthly deposit of R determined in part a), find the size of your sinking balance after two years. Will you meet your target of $20,000? Describe and apply a sanity check for your answer.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You have just opened a savings account which pays monthly interest at a rate of j12
= 5.5% p.a. You wish to accumulate $20,000 by depositing the same amount into
the account at the end of each month, for 2 years, starting in a month's time.
a) Determine the required size for the monthly deposit, R. Apply a sanity check.
b) Construct a sinking fund table showing 24 deposits with a fixed interest rate of
5.5%. Describe and apply a sanity check to your table.
c) Suppose that the interest rate is renewed every three months (quarterly) over the
course of the two years as follows:
Year 1
Q1
5.5%
02
Q3
2.8% 4.5%
04
01
4.0% 4.2%
Year 2
Q2
04
03
3.8% 2.5% 7.5%
If you maintain the same monthly deposit of R determined in part a), find the
size of your sinking balance after two years. Will you meet your target of
$20,000? Describe and apply a sanity check for your answer.
d) Construct a sinking fund table showing 24 deposits with the variable interest rate.
Describe and apply a sanity check to your table.
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