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## #1 2008-10-31 23:55:04

azhar
Member
Registered: 2008-10-31
Posts: 1

### Compound Interest

If you want to withdraw Rs 25,000 at the end of each year for the next 7 years then what amount must you invest today at 5% compounded quarterly?

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## #2 2008-11-01 14:31:57

musician_14
Member
Registered: 2008-11-01
Posts: 4

### Re: Compound Interest

If you want to withdraw 25 000 at the end of each year, for the next 7 years, you must invest \$144 165.0453.

We can check by the following....

The interest of 5% compounded quarterly may be written as (1.0125)^4 (total interest earned after each year on amount still invested).

Amount Invested:  \$144 165.0453

After Year 1:  \$144 165.0453 x (1.0125)^4 = 151 509.5821 after one year subtract 25000.   Amount still invested: \$126 509.5821

After Year 2:  \$126 509.5821 x (1.0125)^4 = 132 954,6554 after two years subtract 25000.  Amount still invested: \$107 954.6554

After Year 3:  \$107 954.6554 x (1.0125)^4 = 113 454.4417 after three years subtract 25000.  Amount still invested: \$88 454.44168

After Year 4:  \$88 454.44168 x (1.0125)^4 = 92 960.78301 after four years subtract 25000.  Amount still invested: \$67 960.78301

After Year 5:  \$67 960.78301 x (1.0125)^4 = 71 423.068 after five years subtract 25000.  Amount still invested: \$46 423.068

After Year 6:  \$46 423.068 x (1.0125)^4 = 48 788.10684 after six years subtract 25000.  Amount still invested: \$23 788.10684

After Year 7:  \$23 788.10684 x (1.0125)^4 = 24 999.999996 after seven years subtract 25000.  Amount still invested:  \$0.00

Last edited by musician_14 (2008-11-01 14:33:38)

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## #3 2008-11-02 06:30:54

Ms. Bitters
Member
Registered: 2008-07-31
Posts: 19

### Re: Compound Interest

OR
Using the formula approach, you first convert your nominal rate of 5% compounded quarterly into its effective rate.  Thus

You then apply the ordinary amortization formula.  Thus

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