Question
Asked Nov 5, 2019
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Your company has decided to set up a fund for its employees with an initial payment of Rs 27,500 compounded six-monthly over a four-year period at a six monthly interest of 3.5%.
(a) Calculate the size of the fund at the end of 4 years.
(b) Calculate the effective annual interest rate.
iv) Show that P = A/r. for an ordinary annuity to infinity.

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Expert Answer

Step 1

a.

Calculate the size of the fund as follows:

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FV PVx(1 2 =$27,500x (1+3.5%)* $27,500x1.3168090369634 $36,212.2485164936 or $36,212.25

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Step 2

b.

Calculate the effective annu...

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APR 1+ EAR -1 2 3.5%x2 1+ -1 2 =(1.035) -1.071225-1 =0.071225 or 7.12%|

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