Assume that today is one month before your 25th birthday and that you have decid
ID: 2698612 • Letter: A
Question
Assume that today is one month before your 25th birthday and that you have decided that you wish to retire at age 65. You have determined that if you make a deposit today in an investment account, and then make an equal deposit every 15 months (every 5 quarters) thereafter, that you will make a 33rd and final deposit the day you turn 65. You believe that by taking on some risk, you can earn a nominal annual return of 12 percent, but where interest is compounded quarterly (3 percent every 3 months). At age 65 (right after making your last deposit) you hope to take the money that you have saved and purchase a guaranteed annuity from an insurance company that will pay you $50,000 in each of Years 66 through 85 (20 payments). Since this annuity is guaranteed, the appropriate discount rate for its cash flows is only 4 percent, but interest will be compounded semi-annually (2 percent every 6 months).
Using the above information how would you find the deposit (15-month rate). The answer is (1.03)^5 - 1 = 15.9274%. However I need to know how to solve this calculation by totally using HP 10bII cacluator with the interest conversion keys i.e. (NOM%, EFF%, P/YR). A step by step instruction would be really nice.
Explanation / Answer
example................................................................................................................ Your grandfather put some money in an account for you on the day you were born. You are now 18 years old and are allowed to withdraw the money for the first time. The account currently has $3996 in it and pays an 8% interest rate. a. How much money would be in the account if you left the money there until your 25th birthday? b. What if you left the money until your 65th birthday? c. How much money did your grandfather originally put in the account................................................................................................................................. solution.........................................A.....FV =3,996(1.08)7 6,848.44.............................B.....FV = 3, 996(1.08)47 = 148, 779...........................................C..............pv=.3, 996/1.08^18 =1000