Granny wishes to give her grandchild $10,000 when the child turns 18 in 10 years time. She
Question:
Granny wishes to give her grandchild $10,000 when the child turns 18 in 10 years time. She has two options:-
Option 1: She can make 10 equal deposits (1st in one year’s time, 2nd in two years’ time etc) at 6% per annum compounded yearly.
(1) How much is each annual deposit under this option?
Option 2: She can invest a lump sum now at 6% per annum compounded monthly.
(ii) How much does the lump sum need to be under this option?
(iii) Calculate the effective rate of interest (ieff ) of her investment at Option 2 and find the total amount of interest she will have earned over the term of the investment in Option 1
ieff (Option 2)=
Total Interest earned (Option 1) =
Operations management processes and supply chain
ISBN: 978-0136065760
9th edition
Authors: Lee J Krajewski, Larry P Ritzman, Manoj K Malhotra