question archive Salem plans to deposit $2200 every 6 months for 15 years to save for his son's higher education
Salem plans to deposit $2200 every 6 months for 15 years to save for his son's higher education
Subject:FinancePrice:2.86 Bought3
Salem plans to deposit $2200 every 6 months for 15 years to save for his son's higher education. The rate of return will be 4% compounded semi-annually for the first 5 years and 8% compounded semi-annually for the subsequent 10 years. Calculate the future value of this ordinary simple annuity, IF HE STOPS payment AFTER 5 YEARS. *
106 237.02
55 782.81
52 782.81
79 196.25
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Effective rate for the first 5 years = 4%/2 = 2%
Effective rate for the next 10 years = 8%/2 = 4%
FV of the first 5 years payment
FV5= CF1/r* [(1+r)n-1]
FV5= 2,200/0.02* [(1+0.02)10-1]
FV5= 110,000*0.218994420
FV5=24,089.3862
FV15=24,089.3862* (1+0.04)20
FV15= 52,782.8116042899
Therefore the right answer is 52,782.81
