Question

Assume you make monthly deposits of $200 starting one month from now into an account that pays 6% per year, compounded semiannually. If you want to know how much you will have after four years, the value of i you should use in the F/A factor, assuming no interperiod interest, is

Answer 1

Answer:

3%

Explanation:

the account pays a 6% annual rate, but since it is compounded semiannually, you must divide it by 2 = 6% / 2 = 3%

since no interperiod interest is paid, the semiannual payment = $200 x 6 = $1,200

the future value = $1,200 x 8.8923 (FV annuity factor, 3%, 8 periods) = $10,670.76