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An investor has found a fund that pays 3% nominal annual interest compounded monthly for two years. The investor must pay a $20,000 deposit at
An investor has found a fund that pays 3% nominal annual interest compounded monthly for two years. The investor must pay a $20,000 deposit at the beginning of the investment. After the investment matures, the finance company will charge a fee of 1.5% of the fund's balance.
(a) Draw a cash flow diagram of the fund.
(b) What is the value of the fund at maturity, including the application of the fee?
(c) What is the effective annual interest rate of the fund, including the application of the fee?
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