Question
QUESTION 1 (20 MARKS) Consider five investment plans at annual interest rates of 4.94 percent compounded quarterly. Investor A: Invest $640 per year for the
QUESTION 1 (20 MARKS)
Consider five investment plans at annual interest rates of 4.94 percent compounded quarterly.
Investor A:
Invest $640 per year for the first 10 years of his career. At the end of 10 years, make no further investments, but reinvest the amount accumulated at the end of 10 years for the next 30 years.
Investor B:
Do nothing for the first 10 years. Then start investing $640 per year for the next 30 years.
Investor C:
Invest $640 per year for the entire 40 years.
Investor D:
Invest $640 per year for the first 5 years, then stop for five years, continue again five years subsequently. After that, make no further investments, but reinvest the amount accumulated at the end of 15 years for the next 25 years.
Investor E:
Put a lump sum of $10,000 now and start investing $640 per year after the 15 years.
Note that all investments are made at the end of each year; the first deposit will be made at n = 1, and you want to calculate the balance at n = 40.
Required: Compare these investment options and discuss the significance of time in choosing various investments.
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