case 1:
3.2% for 5 years, then 4% for 8 years
P(1.008)^20 (1.01)^80 = 25000
P = 9616.55
case 2:
P(1.008)^32 (1.0125)^68 = 25000
P = 8324.16
clearly since he needs less money to invest using the second option to obtain the same goal, he should clearly take the second option.
Steve wants to have $25000 in 25 years, he can only get 3.2% interest compounded quarterly. his bank will guarantee the rate for either 5 or 8 years
in 5 years he can get 4% compounded quarterly for the remainder of the term
in 8 years he can get 5% compounded quarterly for the remainder of the term
which option should steve take the 5 or 8 year?
how much more does he need to invest?
1 answer
1 answer