Problem 2

Assume that it is now January 1, 2022. On January 1, 2023, you will deposit Rs 1,000 into a savings account that pays 8 percent.

a. If the bank compounds interest annually, how much will you have in your account on January 1, 2026?

b. What would your January 1, 2026, balance be if the bank used quarterly compounding rather than annual compounding?

c. Suppose you deposit the Rs 1,000 in 4 payments of Rs 250 each on January 1 of 2022, 2023, 2024, and 2025. How much would you have in your account on January 1, 2026, based on 8 percent annual compounding?

d. Suppose you deposit 4 equal installments in your account on January 1 of 2023, 2024, 2025, and 2026. Assuming an 8 percent interest rate, how large would each of your payments have to be for you to obtain the same ending balance as you calculated in part (a)?