In 3 years an investor deposits the first of eight 1000 payments into a special fund. The fund will earn interest at the rate 5% per year until the end of fifth year. Thereafter, all money accumulated in the fund will earn a reduced interest rate of 4% compounded annually. How much money will the investor have in the fund at the end of ten years assuming no withdrawals are made? a. 8416.32 b. 8872.93 c. 9251.82 d. 9549.11 I just can’t get this question. I keep trying to do it, my best answer is 9737. Anyone can help?
c?
How did you get that number?
well i hope that is right. it is 2 TVM applications. First: PMT=1000 n=3(yrs 3, 4, 5) i=5 0=PV FV=x=3152.50 Second: PV=3152.50 n=5 i=4 PMT=1000 FV=x=C
Crikey … of course. I’m such a pinhead. I calculated the 5% interest from the *first* deposit, not from the first year thus I got it from T3 - T8. My oh my, I think my brain just stopped working. Thanks for your help!
Yep, it’s C. Two Cash flows. Calc the first 3 years – find the FV. Use that FV as the PV for the second calc. Change years to 5 and I/R to 4.
my lord I might be getting this stuff after all, glad to help
Its a weird question, try to over confuse. Actual investment years are only 8 years ie ignore first 2 years and calculate.