fv = pv * (1 + r/n) ^ (n*t) . . . where pv is present value, r is annual rate, n is number of times per year compounded, and t is time in years.
Next, since you're reinvesting the principle and interest at different rates throughout the 4 years, you have to calculate the future value in steps. You're going to use each step's future value as the present value in the next step.
Step 1: fv = 250000 * (1 + 0.045/12) ^ (12*1) = $261,484.96
Step 2: fv = 261484.96 * (1 + 0.0475/4) ^ (4*1) = $274,128.49
Step 3: fv = 274128.49 * (1 + 0.053/2) ^ (2*2) = $304,361.69
The question is:
You have $250000 to invest. Because the financial market is volatile, you have decided to be safe and invest only in the NZ banking sector, and furthermore you have decided to make a number of short term investments to maximise your returns.
Calculate the future value of your $250000 in 4 years time using the following investment plan:
For the first year, invest at 4.5% annual rate, compounded monthly and then reinvest principle and interest for another year, compounded quarterly at 4.75% annual rate, then invest the accumulated principal and interest for the last two years at a fixed 5.3%, compounded every six months.
I am really struggling with this question. If you could take me step by step as I really want to learn how to do it
