Suppose that you deposit $1,000 into a savings account that pays 8 percent.
a. If the bank compounds interest annually, how much will you have in your account in four years?
b. What would your balance be in four years if the bank used quarterly com- pounding rather than annual compounding?
c. Suppose you deposited the $1,000 in four payments of $250 each year beginning one year from now. How much would you have in your account after you make the final deposit, based on 8 percent annual compounding?
d. Suppose you deposited four equal payments in your account beginning one year from today. If you can invest your money at an 8 percent interest rate, how large would each of your payments have to be for you to obtain the same ending balance as you calculated in part (a)?

  • CreatedNovember 24, 2014
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