Annuity with changing interest rates
You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $270,000 after 15 years at an 14 percent annual rate (30 payments). The first payment into the fund is to take place six months from today, and the last payment is to take place at the end of the 15th year. UseAppendix A and Appendix C.
(a) Determine how much the semiannual payment should be. (Round "FV Factor" to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Semi-annual payment $
On the day after the sixth payment is made (the beginning of the fourth year) the interest rate goes up to a 16 percent annual rate, and you can earn a 16 percent annual rate on funds that have been accumulated as well as all future payments into the fund. Interest is to be compounded semiannually on all funds.
(b) Determine how much the revised semiannual payments should be after this rate change (there are 24 payments and compounding dates). The next payment will be in the middle of the fourth year.(Round "FV Factor" to 3 decimal places, intermediate and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Revised semi-annual payments $