# investment with varying interest rates

Step-by-step solution in equation form for all cost analysis sections

1. What sum of money will be accumulated in 10 years if:

a) $100 is invested at the end of each month at a 15% rate of return compounded annually.

b) The same investment as above for a 3% rate of return compounded monthly. What is the effective rate?

c) $1,000 is invested at the end of the first year, $1,100 is invested at the end of the second year and each succeeding years investment is $100 higher for 10 years at 15% compounded annually.

d) What single investment at time zero would generate the part (a) future worth?

e) What will the present worth of investments in part (c) be if the investments are started at the end of year 5 for 10 years?

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#### Solution Preview

1. What sum of money will be accumulated in 10 years if:

a) $100 is invested at the end of each month at a 15% rate of return compounded annually.

PV = 0

payment = 100

monthly interest rate is r= 15%/12=1.25%

Number of months is N = 120

By a financial calculator,

compute FV = $27,521.71

b) The same investment as above for a 3% rate of return compounded monthly. What is the effective rate?

PV = ...

#### Solution Summary

This job explores investments with varying interest rates are provided.