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# Three years from now, an investor will deposit the first of eight $1,000 payments into a special fund. The fund will earn interest at the rate of 5% per year until the third deposit is made. Thereafter, the fund will return a reduced interest rate of 4% compounded annually until the final deposit is made. How much money will the investor have in the fund at the end of ten years assuming no withdrawals are made?

Question:

A
$9,251.82.

Explaination

Its best to break this problem into parts to accommodate the change in the interest rare. Money in the fund at the end of ten years based on deposits made with initial interest of 5%:

(1)The total value in the fund at the end of the fifth year is $3,152.50:

PMT = -1,000; N = 3; I/Y = 5; CPT -> FV = $3,152.50. (calculator in ENDmode)

(2)The $3,152.50 is now the present value and will then grow at 4% until the end of the tenth year. We get: PV = -3,152.50; N = 5; L/Y = 4; PMT = -1,000; CPT -> FV = $9,251.82

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