Im having problems trying to figure out how to solve this problem.
The formula for Future Value of an Ordinary Annuity is
FV=PMT( (1+I)^n -1)/I)
The problem isFind the I (rate per period) and the N( number of Periods) for each annuity.
Quarterly deposits of $500 are made for 20 years into an annuity that pays 8% coumpounded quarterly.
Since it is deposited quarterly do i multiply 500x4? and since it is compounded quarterly do I divide both interest by 4?
When a question says that a certain amount is deposited x number of times a year, do i ignore that and just divide the interest and multiply n by the # compunded??
In this case $500 is deposited quarterly and the whole thing is coumpounded quarterly, so it all works out to 4.
what if $500 is deposited every month and coumpounded quarterly?
You need to convert the quarterly rate into its equivalent monthly rate.
One way of doing this is to equate the effective rate of say 8% compounded quarterly as given by
with the effective rate of j% compounded monthly which is given by
You then solve for j.
After that, you merely replace 8% with j and 4 with 12 in your corrected formula.