1
$\begingroup$

I am stuck on a textbook question for a long time now.

What is the amount of quarterly deposits A, such that you will be able to withdraw the amounts in cash flow diagram if the interest rate is 8% compounded monthly ?

enter image description here

My attempt :

I found out the effective interest rate as $2\%$. Now I formed the equation :

$(A(F/P,2\%,4) + A(F/A,2\%,4) - 1500 )*(F/P,2\%,4) + A(F/A,2\%,4) = 2500$

Solving which I get $A = \$422.75$ . But the answer at the back of the book says $\$755.89.$

I don't understand where I am going wrong. Any suggestions as to where I might be going wrong?

$\endgroup$
  • $\begingroup$ Trying your answer and book answer simply, like 8 or 9 times 422 vs. 8 or 9 times 755, and interest roughly, leads to a thougth that is the picture really as it is shown. And at one year (time 4) and at two year (time 8), do you make deposit and withdrawal? Or is it just withdrawal? $\endgroup$ – Gspia Aug 11 '16 at 19:20

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.