An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for the remaining 15 years. The savings plan pays compound interest at the rates of: 6% p.a. nominal convertible monthly for the first 10 years, and • 7.5% p.a. nominal convertible quarterly for the remaining 10 years. (i) Calculate the total amount of fund accumulated in the savings plan at the end of the 20- year period. (ii) At the end of the 20-year period, the individual intends to invest the total savings into a level fixed term annuity product that provides a future retirement income. Calculate the monthly income that the individual can obtain by investing the sum calculated in part (i) into a 25-year term annuity payable monthly in arrears at an effective interest rate of 4.5% p.a.
An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for the remaining 15 years. The savings plan pays compound interest at the rates of: 6% p.a. nominal convertible monthly for the first 10 years, and • 7.5% p.a. nominal convertible quarterly for the remaining 10 years. (i) Calculate the total amount of fund accumulated in the savings plan at the end of the 20- year period. (ii) At the end of the 20-year period, the individual intends to invest the total savings into a level fixed term annuity product that provides a future retirement income. Calculate the monthly income that the individual can obtain by investing the sum calculated in part (i) into a 25-year term annuity payable monthly in arrears at an effective interest rate of 4.5% p.a.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
PLEASE, WRITE THE SOLUTIONS ON PAPER, EXPLAINING THE ENTIRE PROCESS, THE ONLY AND CORRECT SOLUTIONS ARE FOR (i) A20 = £455,154.48 AND (ii) R = £2,506.64 pm
![An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The
payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for
the remaining 15 years.
The savings plan pays compound interest at the rates of:
6% p.a. nominal convertible monthly for the first 10 years, and
• 7.5% p.a. nominal convertible quarterly for the remaining 10 years.
(i)
Calculate the total amount of fund accumulated in the savings plan at the end of the 20-
year period.
(ii)
At the end of the 20-year period, the individual intends to invest the total savings into a
level fixed term annuity product that provides a future retirement income. Calculate the
monthly income that the individual can obtain by investing the sum calculated in part (i)
into a 25-year term annuity payable monthly in arrears at an effective interest rate of
4.5% p.a.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F017b5c7e-49c0-46c7-a22b-9336d465c7c9%2F88516760-7fe8-4e2c-982a-2dfc3423ea8a%2Fms7w8e7_processed.png&w=3840&q=75)
Transcribed Image Text:An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The
payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for
the remaining 15 years.
The savings plan pays compound interest at the rates of:
6% p.a. nominal convertible monthly for the first 10 years, and
• 7.5% p.a. nominal convertible quarterly for the remaining 10 years.
(i)
Calculate the total amount of fund accumulated in the savings plan at the end of the 20-
year period.
(ii)
At the end of the 20-year period, the individual intends to invest the total savings into a
level fixed term annuity product that provides a future retirement income. Calculate the
monthly income that the individual can obtain by investing the sum calculated in part (i)
into a 25-year term annuity payable monthly in arrears at an effective interest rate of
4.5% p.a.
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