Question
Suppose, at the end of every year for the next ten years, you invest $5000 in a financial instrument that pays an annual interest rate
Suppose, at the end of every year for the next ten years, you invest $5000 in a financial instrument that pays an annual interest rate of 7.5%.
a) Determine the future value that you will have at the end of 10 years if:
i) $5000 is deposited annually and interest is paid annually.
ii) $3000 is deposited semiannually and interest is paid semiannually.
iii) $1500 is deposited quarterly and interest is paid quarterly.
b) Discuss what you answer to part a) suggest about the effect of more frequent deposits and compounding of interest on the future value of a financial instrument.
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