Annual effective rate of payments


Question1. To supplement your planned retirement in exactly 39 years, you estimate that you need to accumulate $380,000 by the end of 39 years from today. You plan to make equal, annual, end-of-year deposits into an account paying 6% yearly interest.

A: How large must the annual deposits be to make the $380,000 fund by the end of 39 years?

B: If you can afford to deposit only $2,040 per year in the account, how much will you have accumulated by the end of the 39 years?

Question2. Mike obtains a cash flow of 100 today, 200 in two years, and 100 in four years. The present value of this cash flow is 378 at a yearly effective rate of interest i. Compute i.

A) 2.91%

B) 3.91%

C) 4.91%

D) 5.91%

E) 6.91%

Question3. Payments of X are made at the beginning of each year for 15 years. These payments earn interest at the end of each year at a yearly elective rate of 8%. The interest is immediately reinvested at the annual effective rate of 5%. At the end of 15 years, the accumulated value of the 15 payments and the reinvested interest is 4000. Calculate X.

A) 147

B) 152

C) 157

D) 162

E) 167

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Financial Accounting: Annual effective rate of payments
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