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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

NONANNUAL COMPOUNDING

  1. a. You plan to make five deposits of $1,000 each, one every 6 months, with the first payment being made in 6 months. You Mill then make no more deposits. If the bank pays 4% nominal interest, compounded semiannually, how much will be in your account after 3 years?
  2. b. One year from today you must make a payment of $10,000. To prepare for this payment, you plan to make two equal quarterly deposits (at the end of Quarters 1 and 2) in a bank that pays 4% nominal interest compounded quarterly. How large must each of the two payments be?

a.

Summary Introduction

To determine: The amount of money accumulated in the account after three years.

Future value:

Future value is the amount of a current asset at a certain point of time in the future, which has been accumulated at an assumed rate of growth.

Explanation

Calculate the amount received after three years.

FutureValue=[Payment×{(1+Interest rate)Time1Interest rate}]×(1+Interest rate)=[$1,000×{(1+0

b.

Summary Introduction

To determine: The amount of payments.

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