- A client invests €20,000 in a four-year certificate of deposit (CD) that annually pays interest of 3.5%. The annual CD interest payments are automatically reinvested in a separate savings account at a stated annual interest rate of 2% compounded monthly. At maturity, the value of the combined asset is closest to:
- €21,670.
- €22,890.
- €22,950.
Accumulated value of interest payments:
P/Y=1, C/Y=12, set calculator to END
N=4, I=2, PMT=700, CPT FV = 2,885.92
Add back the 20,000 principal for total of 22,885.92
I tried solving this way but still could not get the answer:
I entered the following: N= 36 I/Y = 2/12 PMT = -700 and computed for the FV.
Where did I go wrong?
If yyou have P/Y=C/Y=1, then the above assumes 700 each month. rather than annually.
Try P/Y=1, C/Y=12, I=2.
I think the OP question has already been posted elsewhere.
I get it now. Thank you so much for clearing my doubts. I have been stressting too much on this sum.
Wow. . . how on earth did I go through the entire CFA program and not learn the C/Y configuration?
I would have converted to an effective annual rate and used that to find the FV.
^ We should go get a beer sometime at the library.
Hey don’t tempt me with a good time. Besides, I’m reading a book right now by an author which basically requires you to drink in order to get through it.