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Suppose you deposit $500 at the end of each quarter for five years at an interest rate of 8% compounded monthly. What equal end-of-year deposit over the five years would accumulate the same amount at the end of the five years under the same interest compounding? To answer the question, which of the following is correct?
Question :Suppose you deposit $500 at the end of each quarter for five years at an interest rate of 8% compounded monthly. What equal end-of-year deposit over the five years would accumulate the same amount at the end of the five years under the same interest compounding? To answer the question, which of the following is correct? Answer : c) A = $500 (F/A, 8%/12, 20) X (A/F, 8%, 5). Explanation : As , Formulae for end of each quarter componded annually is : – A = Principle…

(F/A, Monthly interest rate, No. of installments) X (A/F. annual interest rate, No. of years) In our case :- Principle = $500 Monthly interest rate = 8%/12 No. of installments = 4 installments * 5 years = 20 Annual interest rate = 8% No. of years = 5 Hence, Formulae becomes :- A = $500 (F/A, 8%/12, 20) X (A/F, 8%, 5).

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