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    Time Value of Money

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    Beverly started a paper route on January 1, 1995. Every three months, she deposits $300 in her bank account, which earns 8 percent annually but is compounded quarterly. On December 31,1998, she used the entire balance in her bank account to invest in a certificate of deposit at 12 percent annually. How much will she have on December 31, 2001?

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    Solution Preview

    FVIF= Future Value Interest Factor
    FVIFA= Future Value Interest Factor for an Annuity
    FVIF( n, r%)= =(1+r%)^n
    FVIFA( n, r%)= =[(1+r%)^n -1]/r%

    Step 1:

    We will have to calculate the Future Value (FV) of 300
    deposited quarterly for ...

    Solution Summary

    The solution calculates Future Value for annuity (quarterly compounding) which is again invested in a certificate of deposit (annual compounding).