How large must each of the payments be

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Assume that 5 years from now you will need RM2000. Your bank compounds interest at a 6% annual rate.

Question a. How much must you deposit 1 year from now to have a balance of RM2,000 at Year 5?

Question b. If you want to make equal payments at the end of Years 1 through 5 to accumulate the RM2,000, how large must each of the 5 payments be?

Question c. If your father were to offer either to make the payments calculated in part (b) or to give you a lump sum of RM1,050 one year from now, which would you chose?

Question d. If you have only RM1,050 at the end of Year 1, what interest rate, compounded annually, would you have to earn to have the necessay RM2,000 at Year 5?

Reference no: EM132544905

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