Reference no: EM132584042
It is now January 1, 2009; and you will need $1,000 on January 1, 2013, in 4 years. Your bank compounds interest at an 8% annual rate.
Question a. How much must you deposit today to have a balance of $1,000 on January 1, 2013?
Question b. If you want to make four equal payments on each January 1 from 2010 through 2013 to accumulate the $1,000, how large must each payment be? (Note that the payments begin a year from today.)
Question c. If your father offers to make the payments calculated in Part b or to give you $750 on January 1, 2010 (a year from today), which would you choose? Explain.
Question d. If you have only $750 on January 1, 2010, what interest rate, compounded annually for 3 years, must you earn to have $1,000 on January 1, 2013?
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