Question 3:

You wish to save $2000 to go on a holiday when you finish university in 2.5 years time. You plan to do this by making regular deposits of the same size into a savings account that pays interest j52= 4.68% p.a., starting in one weeks time.

a) Illustrate this scenario as a fully labelled time line diagram.

b) Determine the deposit size required. Enter this value to 2 decimal places as an answer.

c) Explain and perform a sanity check on your answer to (b)

d) Immediately after your 50th deposit, the interest rate increases to j52=4.78 % p.a. Draw an appropriate time line of the scenario and then determine what deposit size will now be needed for deposits 51 to 130 in order to still meet your original target of $2000.

e) Determine how much will be accumulated at the end of the savings scheme if you continue with the old weekly deposit size after the interest rate changes