Question
Could someone please look over my work and correct it
A person made semi-annual deposits of $490 into an account that pays 5.1% a interest compounded bi-weekly, for 6 years. Determine the future value of the investment.
N= 6*2= 12
I= 5.1
PV= 0
PMT= -490
(FV) = -6964.393519
P/Y= 2
C/Y= 12
A person made semi-annual deposits of $490 into an account that pays 5.1% a interest compounded bi-weekly, for 6 years. Determine the future value of the investment.
N= 6*2= 12
I= 5.1
PV= 0
PMT= -490
(FV) = -6964.393519
P/Y= 2
C/Y= 12
Answers
Reiny
This is a complicated question.
To use our general formulas, the payment period must coincide with the interest period. With your data it doesn't.
Your payments are made semi-annually, while the interest is compounded biweekly.
I will take the definition of "bi-weekly" to mean every two weeks.
since the payments are made semi-annually, we have to convert the bi-weekly interest period to a semiannual equivalent
let the semi-annual rate be j
given bi-weekly rate = .051/26 = .001961538
then (1+j)^2 = 1.00196538^26 , based on one year
1 + j = 1.00196538^13
j = .025802
so we can now calculate at the semi-annual rate of .0258
amount = 490(1.025802^12 - 1)/.025802
= $6790.56
your data summary makes absolutely no sense to me.
To use our general formulas, the payment period must coincide with the interest period. With your data it doesn't.
Your payments are made semi-annually, while the interest is compounded biweekly.
I will take the definition of "bi-weekly" to mean every two weeks.
since the payments are made semi-annually, we have to convert the bi-weekly interest period to a semiannual equivalent
let the semi-annual rate be j
given bi-weekly rate = .051/26 = .001961538
then (1+j)^2 = 1.00196538^26 , based on one year
1 + j = 1.00196538^13
j = .025802
so we can now calculate at the semi-annual rate of .0258
amount = 490(1.025802^12 - 1)/.025802
= $6790.56
your data summary makes absolutely no sense to me.