Effective Rate on Investments
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1) Calculate the future value of $1,000 in 10 years assuming an interest rate of 12% (APR) compounded quarterly. Also calculate the effective rate (EAR) on the investment.
2) Mr. Wise is retiring in 25 years. He would like to accumulate $1,000,000 for his retirement fund by then. He plans make equal monthly payments to achieve his goal. If the rate of return on the retirement fund is 12%, what will his monthly payments be?
Show all calculations including intermediate ones for both problems. Show all work.
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This solution assists with the question regarding effective rates on investments.
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1) This is FV of single payment
FV=A*(1+r/m)^(n*m)
A=$1000
r=12%
m=quarterly=4
n=10 ...
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