You are planning to save some money. Out of your yearly income you will deposit a fixed amount (you can use any percent 4%, 5%, 6% or 8% of your salary) per semester at a nominal rate of 8% per year compounded each 6 months during 5 years. After the fifth year, the interest rate will change to 6% per year compounded each 6 months. You will withdraw the money 10 years after the first deposit. How much will be withdrawn?
For example, if my income is $50,000 per year and I choose a 5%, I will be depositing $2,500 per semester during the first 5 years at 8% and from year 6 until year 10 at a nominal rate of 6% per year. Notice that the interest rate is a nominal rate compounded per semester (twice a year).
Assuming that the payments of $2500 are made at the end of each six-momth period, we use the following formula to ...
Neat and step-by-step solution is provided.