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It is now January 1. You plan to make a total of 5 deposits of $100 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 12% but uses semiannual compounding. You plan to leave the money in the bank for 10 years.

User Beej
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Answer:

at the end of year 10, your account's balance = $1,432.02

Step-by-step explanation:

since the interest rate is compounded every 6 months, we can use a 6% semiannual interest rate.

the first payment will be kept in the bank for 10 years or 20 six month periods: $100 x 1.06²⁰ = $320.71

the second payment will be kept in the bank for 9.5 years or 19 six month periods: $100 x 1.06¹⁹ = $302.56

the third payment will be kept in the bank for 9 years or 18 six month periods: $100 x 1.06¹⁸ = $285.43

the fourth payment will be kept in the bank for 8.5 years or 17 six month periods: $100 x 1.06¹⁷ = $269.28

the fifth payment will be kept in the bank for 8 years or 16 six month periods: $100 x 1.06¹⁶ = $254.04

at the end of year 10, your account's balance = $320.71 + $302.56 + $285.43 + $269.28 + $254.04 = $1,432.02

User Jolin
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