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To save money for a new house, you want to begin contributing money to a brokerage account.  Your plan is to make ten contributions to the brokerage account.  Each contribution will be for $2,500.  The contributions will come at the beginning of each of the next 10 years, i.e., the first contribution will be made today at t = 0 and the final contribution will be made at t = 9. Assume that the brokerage account pays a 9 percent return with semi-annual compounding.  How much money do you expect to have in the brokerage account nine years from now (t = 9)?

Question

 To save money for a new house, you want to begin contributing money to a brokerage account.  Your plan is to make ten contributions to the brokerage account.  Each contribution will be for $2,500.  The contributions will come at the beginning of each of the next 10 years, i.e., the first contribution will be made today at t = 0 and the final contribution will be made at t = 9. Assume that the brokerage account pays a 9 percent return with semi-annual compounding.  How much money do you expect to have in the brokerage account nine years from now (t = 9)?
 
 

check_circleAnswer
Step 1

Calculation of value in brokerage account in nine years:

Firstly, convert 9% return into quarterly...

4
0.09
1
EAR
-1
0.09308
= 9.308%
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4 0.09 1 EAR -1 0.09308 = 9.308%

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