b) Aida Kamilia won RM1,000,000 in a contest, to be paid in twenty RM50,000 payments at yearly intervals. The first payment paid at the time of the contest. (Of course, the present value of her winnings is less than RM1,000,000). Aida Kamilia decided to keep each year to spend and deposit the remaining into account earning an annual effective rate of 5%. She chose the value of to be as large as possible so that at the moment of the 20th deposit, the account would have grown to such a size that it would provide Aida Kamilia at least per year in interest forever. Find X
a) An investment has the following cash flows:
Time (years) | Investment (outflow) | Return (inflow) |
0 | RM1,000 | |
1 | RM250 | |
2 | RM250 | |
3 | RM250 | |
4 | RM250 | |
5 | RM250 | |
10 | RMX |
i) In order for the investment to return at an effective rate of interest of 9.5% per annum, what is
ii) Suppose now that , and is paid at time , what is the effective annual rate of interest earned on this investment, to the nearest one decimal place?
b) Aida Kamilia won RM1,000,000 in a contest, to be paid in twenty RM50,000 payments at yearly intervals. The first payment paid at the time of the contest. (Of course, the present value of her winnings is less than RM1,000,000). Aida Kamilia decided to keep each year to spend and deposit the remaining into account earning an annual effective rate of 5%. She chose the value of to be as large as possible so that at the moment of the 20th deposit, the account would have grown to such a size that it would provide Aida Kamilia at least per year in interest forever.
Find X
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