A client invests € 20000 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 seperate savings account at a stated rate of 2% compounded monthly. At maturity, the value of the combined asset is closest to:
In this question, I am unable to understand that why the cashflows are equal to € 700? If anyone can help me solve this question on TI BAII Plus calculator… It would be a great help
Thanks in Advance 
At the end of each year, the CD will pay € 700 = 20,000 * 3.5%. That payment gets reinvested in an account earning 2% compounded monthly. This process will occur 4 times
On the BAII:
P/Y=1 C/Y=12
END
2nd CLR TVM
N 4 I 2 PMT 700 CPT FV (I don’t have my calculator handy 
)
Add 20,000 to whatever FV is to get the final answer.
Thanks @breadmaker !
Can I trouble you for another query?
Since I have not been acquainted with P/Y and C/Y function, is there any other way we can solve this by using N, I/Y, PV, Pmt and FV?
If there’s not, I would love to learn this method as well!
My second query is that 700 is a PMT right?
So if i enter the values:
N= 4
I/Y= 3.5
PV= 20,000
FV= 0
CPT- PMT… Gives me another result
I don’t understand why that’s happening?
Note: YOU MIGHT MEED YOUR CALCULATOR😅
That’s a completely different problem.
What you’re getting is the answer to the question: If I deposit 20,000 into an account that earns 3.5% per year, how much can I withdraw every year for 4 years? Or the question: If I borrow 20,000 for 4 years with an annual interest rate of 3.5%, what would my annual (equal) payment be to pay off the loan?
Can you elaborate?
I still don’t understand what makes this question different from yours!
I’m really sorry… i’m just very new to all this stuff!
Think of it this way: rather than being reinvested with the 20,000 at 3.5%, that € 700 is being taken out of the account and put into a SECOND account earning 2.0% compounded monthly. That’s how I set up my TVM calc: that second account has all the € 700 payments rolled up with 2.0% interest. To that, we have to add our original 20,000.
P/Y - payments per year
C/Y - compounding frequency per year
And take the time to read through the calculator manual!!! 
Haha! Thanks i understood the point! And yes i will 
For starters, you’re solving for a payment; in the original, you were given the payment as €700.
Second, your interest rate is different; you’re using 3.5% interest whereas in the original the €700 payments are being reinvested at 2%.
Third, your interest is compounded annually, whereas in the original the 2% interest is compounded monthly.
Alright! Thank you so much 
It was very helpful.
Good to hear.
I like @breadmaker’s idea of thinking about the coupon reinvestment as a separate account. It’s a good visualization.