Question
Q1. Suppose you deposit fund in a bank saving account each month as follows: - For the first twenty months, the deposits are $1,000 per
Q1. Suppose you deposit fund in a bank saving account each month as follows: - For the first twenty months, the deposits are $1,000 per month deposited at the end of each month. - The first deposit takes place at the end of the first month. - For the 21st till the 40th month, the deposited amounts increase by $10 from previous month deposit. Still, deposits are made at the end of each month. -For example, the deposit in the 21st month is $1,000+$10 = $1,010. - For the 41st till the 60th month, the deposits increase by 2% each month as compared to the previous year. Still, deposits are made at the end of each month. -For example, the deposit at the end of the 41st month is: (1,000+10*20) * (1+0.02) = $1,224. -Subsequently, the deposit at the end of the 42nd month is: (1,000+10*20) * (1+0.02)2 = $1248.48.
The saving account is expected to have an interest at a rate of 0.35% per month. Assume that you dont withdraw the interest earned at the end of each interest period (year), but instead let it accumulate.
a] How much will you have at the end of the 60th month? Please note that compounding is monthly as stated earlier.
b] Now suppose that all payments made by you remain the same but another bank is offering the following information to attract your business: - Compounding is daily - Nominal annual interest rate is 4.1% Calculate how much you are expected to have at the end of the 60th month given this new information.
Note: In this question, you are expected to use compounding factors for uniform, arithmetic, and geometric series. Please show clearly your calculations steps.
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