1
$\begingroup$

Find the accumulated value at the end of six years of an investment fund in which \$100 is deposited at the beginning of each quarter for the first three years and \$50 is deposited at the beginning of each quarter for the second three years, if the fund earns 6% convertible monthly.


I need help understanding the solution.

Where is the exponent 3 coming from? The quarterly interest rate equivalent to 6% convertible monthly is $$ (1.005)^3 – 1 = 0.015075 $$

I am not sure now how to find the accumulated value at the end of six years.

$\endgroup$
  • 1
    $\begingroup$ When you ask where the exponent 3 is coming from, are you talking about the following equation? Note that there are three months in a quarter. $\endgroup$ – Trevor Wilson Feb 27 '13 at 21:39
1
$\begingroup$

The exponent $3$ comes because there are three months in a quarter. The $6\%$ per year equates to $0.5\%$ per month. After three months this has compounded to $1.005^3$

To answer the question, I would make a spreadsheet with a line showing the balance at the end of each quarter, including deposits and interest. There are formulas that can be used.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.