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Question 1141228: If an employee deposits Rs. 2,000 at the end of each year into his company’s plan which pays 7% interest compounded quarterly, how much will he have in the account at the end of 5 years?
Found 2 solutions by Theo, MathTherapy:
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! 2000 is deposited at the end of each year.
plan pays 7% compounded quarterly.
how much in the account at the end of 5 year.
7% per year is the nominal annual interest rate.
to find the effective annual interest rate, do the following:
7% per year / 4 equals 1.75% per quarter.
divide that by 100 and add 1 to it and then take it to the fourth exponent to get:
1.75 / 100 = .0175 + 1 = 1.0175 ^ 4 = 1.071859031.
subtract 1 from that and multiply it by 100 to get 7.1859031%.
that's the effective annual interest rate.
stick that in your financial calculator.
set the number of time periods equal to 5 years.
set present value and future value to 0.
set yearly payment to -1000 (negative because money going out).
set yearly payments to end of each year.
tell the calculator to give you future value.
you will get 5772.10948 without rounding.
it will become 5772.11 with rounding to the nearest penny.
here's a display of the results using a financial calclator.
the one i used online is at https://arachnoid.com/finance/
the more detailed one that i use off line is the TI-BA-II (Texas Instruments Business Analyst II).
it give you more decimal places in the result than the online one.
if you were to use cash flow analysis, you would get the same result as shown below:
on the right i used the net present value function to get the present value of the cash flows for 5 years.
i then used the future value function to get the future value of the present value for same 5 years.
on the left i created cash flows at the end of each 4 quarters of a year.
this simulated the payment of 1000 at the end of each of the 5 years.
there were 20 quarters in all.
i used the quarterly interest rate of 7 / 100 = .07 / 4 = .0175.
the three columns are the cash flows, the present value of the cash flows, and the future value of the cash flows.
both methods gave the same results, as they should have.
Answer by MathTherapy(10551)  (Show Source):
You can put this solution on YOUR website!
If an employee deposits Rs. 2,000 at the end of each year into his company’s plan which pays 7% interest compounded quarterly, how much will he have in the account at the end of 5 years?
I know that you must know that this person must be doing a totally different problem, or maybe he's just CONFUSED.
How can someone deposit $2,000 for 5 years, earning interest of 7%, regardless of annual compounding periods, and end up with $5,772 at the end of those 5 years?
Is he for real? You decide!!
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