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Annuity payment amounts with changing interest

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Set up a fund of semi-annual payments to be compounded semi-annually to accumulate a some of $100,000 after 10 years at an 8 percent annual rate (20 payments). The 1st payment into the fund is to occur over 6 months starting today and the last payment is to take plae at the end of the 10th year.

a. Determine how much the semi-annual payment should be. (round to whole numbers.)

On the date after the 4th payment is made (beginning of the 3rd year) the interest rate will go up to a 10 percent annual rate, and you can earn a 10 percent annual rate on funds that have been accumulated as well as all future payments into the fund. Interest is to be compounded semi-annually on all funds.

b. Determine how much the revised semi-annual payments should be after this rate change (there are 16 payments and compounding dates). The next payment will be in the middle of the 3rd year. (Round all values to whole numbers).

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The solution explains how to calculate the annuity payment amounts with changing interest

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