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.
fv=500((1+.08/4)^20-1)/.08
Since it is deposited quarterly do i multiply 500x4? and since it is compounded quarterly do I divide both interest by 4?
help! thanks
Thanks!
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?
Kinda
Then you have a complex or general annuity problem.
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.