Your friend has managed to save some money from their student loans while they have been attending SMU with you. They prepared their budget and deposited their expected cash surplus in a high return account at the start of each year of their 4 year commerce program. They managed to deposit $500 in year 1, $750 in year 2, $900 in year 3 and they just deposited $1,500 today into the saving account. Over the 4 years, interest rates have changed for the account and you have been provided the following information:
Year APR Description
1 7.25% Per year
2 5.125% Compounded semi-annually
3 6.50% Per year
4 5.75% Compounded monthly
(a) How much is expected to be in the account when you and your friend graduate at the end of year 4?
(b) You have been diligent in your savings efforts and have saved your birthday money for the last 10 years. Your first deposit was $100 at the beginning of the year and the account has an interest rate of 4.0 percent that is compounded daily (assume a constant 365 days per year). How much money will be in the account at the end of 10 years? Hint: A time line will help.