An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for the remaining 15 years. The savings plan pays compound interest at the rates of: (i) 6% p.a. nominal convertible monthly for the first 10 years, and 7.5% p.a. nominal convertible quarterly for the remaining 10 years. Calculate the total amount of fund accumulated in the savings plan at the end of the 20- year period. (ii) At the end of the 20-year period, the individual intends to invest the total savings into a level fixed term annuity product that provides a future retirement income. Calculate the monthly income that the individual can obtain by investing the sum calculated in part (i) into a 25-year term annuity payable monthly in arrears at an effective interest rate of 4.5% p.a.
An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for the remaining 15 years. The savings plan pays compound interest at the rates of: (i) 6% p.a. nominal convertible monthly for the first 10 years, and 7.5% p.a. nominal convertible quarterly for the remaining 10 years. Calculate the total amount of fund accumulated in the savings plan at the end of the 20- year period. (ii) At the end of the 20-year period, the individual intends to invest the total savings into a level fixed term annuity product that provides a future retirement income. Calculate the monthly income that the individual can obtain by investing the sum calculated in part (i) into a 25-year term annuity payable monthly in arrears at an effective interest rate of 4.5% p.a.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The
payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for
the remaining 15 years.
The savings plan pays compound interest at the rates of:
●
●
(i)
6% p.a. nominal convertible monthly for the first 10 years, and
7.5% p.a. nominal convertible quarterly for the remaining 10 years.
Calculate the total amount of fund accumulated in the savings plan at the end of the 20-
year period.
(ii) At the end of the 20-year period, the individual intends to invest the total savings into a
level fixed term annuity product that provides a future retirement income. Calculate the
monthly income that the individual can obtain by investing the sum calculated in part (i)
into a 25-year term annuity payable monthly in arrears at an effective interest rate of
4.5% p.a.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F017b5c7e-49c0-46c7-a22b-9336d465c7c9%2F35b9eae2-1b3a-4435-bae1-140d44d0ad50%2Fy8hhtzn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The
payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for
the remaining 15 years.
The savings plan pays compound interest at the rates of:
●
●
(i)
6% p.a. nominal convertible monthly for the first 10 years, and
7.5% p.a. nominal convertible quarterly for the remaining 10 years.
Calculate the total amount of fund accumulated in the savings plan at the end of the 20-
year period.
(ii) At the end of the 20-year period, the individual intends to invest the total savings into a
level fixed term annuity product that provides a future retirement income. Calculate the
monthly income that the individual can obtain by investing the sum calculated in part (i)
into a 25-year term annuity payable monthly in arrears at an effective interest rate of
4.5% p.a.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question
no tables, please, only formulas
correct answers:
(i) A20 = £455,154.48
(ii) R = £2,506.64 pm
Solution
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Foundations Of Finance](https://www.bartleby.com/isbn_cover_images/9780134897264/9780134897264_smallCoverImage.gif)
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
![Fundamentals of Financial Management (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781337395250/9781337395250_smallCoverImage.gif)
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Corporate Finance (The Mcgraw-hill/Irwin Series i…](https://www.bartleby.com/isbn_cover_images/9780077861759/9780077861759_smallCoverImage.gif)
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education