are considering a 10 year investment plan in which your target is $150,000. There are two options available for you: Option 1: Putting exactly an equal amount of money into an investment fund at the end of each year for 10 years with the rate of return of 8%, annually compounding. Option 2: Putting your initial investment of $50,000 in an asset that will pay you 9% rate of return, compounding quarterly for the first 6 years. The rate of return, compounding annually for the last 4 years (the period from year 7 to the end of year 10) has not been defined yet. Required: Compute the effective annual interest rate (EAR) in the first 6 years in Option 2? Compute the annually compounding rate of return you should target for your asset in the following 4 years to get $150, 000 at the end of year ten in Option 2?
You are considering a 10 year investment plan in which your target is $150,000. There are two options available for you:
Option 1: Putting exactly an equal amount of money into an investment fund at the end of each year for 10 years with the
Option 2: Putting your initial investment of $50,000 in an asset that will pay you 9% rate of return, compounding quarterly for the first 6 years. The rate of return, compounding annually for the last 4 years (the period from year 7 to the end of year 10) has not been defined yet.
Required:
Compute the effective annual interest rate (EAR) in the first 6 years in Option 2?
Compute the annually compounding rate of return you should target for your asset in the following 4 years to get $150, 000 at the end of year ten in Option 2?
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