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July 5th, 2018, 09:05 PM   #1
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Term Deposit

Someone is considering taking a long term deposit. These are the rates:

12 months - 4.25% p.a
24 months - 5.00% p.a
36 months - 6.00% p.a
48 months - 6.25% p.a
60 months - 6.50% p.a

- If they choose to invest \$5000 for 60 months with interest paid at maturity,
what will their return be?

- If they invest \$5000 in yearly increments (1, 2, 3, 4 & 5) (\$5000 for year 1
+ Balance paid at maturity reinvested for another 2 years and so forth.)
what will their return be? How many years will it take altogether using this
method?

Last edited by greg1313; July 5th, 2018 at 11:40 PM.
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July 6th, 2018, 03:26 AM   #2
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Quote:
Originally Posted by jshhndsd View Post
Someone is considering taking a long term deposit. These are the rates:

12 months - 4.25% p.a
24 months - 5.00% p.a
36 months - 6.00% p.a
48 months - 6.25% p.a
60 months - 6.50% p.a

- If they choose to invest \$5000 for 60 months with interest paid at maturity,
what will their return be?
Since this was for 60 months the interest is, as given above, 6.50%? If so then 60 months is 5 years so the total interest earned is \$5000(0.065)(5)=\ $1625.

Quote:
- If they invest \$5000 in yearly increments (1, 2, 3, 4 & 5) (\$5000 for year 1
+ Balance paid at maturity reinvested for another 2 years and so forth.)
what will their return be? How many years will it take altogether using this
method?
Your "another 2 years" confuses me. Is the $5000 initially invested left for two years before being reinvested? And is it then reinvested only for two more years, not the remaining three years?

I will treat this as "compound interest", compounded annually. If the \$5000 initially invested is reinvested annually along with the interest earned, then, in 5 years it will have accrued to $\displaystyle \$5000(1+ r)^{5}$ so $\displaystyle \$5000(1+ r)^{5}-\$5000$ in interest. You can then treat the \$5000 invested the second year separately. It will earn $\displaystyle \$5000(1+ r)^4- \$5000$ interest, etc.

Last edited by skipjack; July 6th, 2018 at 06:16 AM.
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July 6th, 2018, 09:36 AM   #3
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From: Ottawa Ontario, Canada

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Quote:
Originally Posted by jshhndsd View Post
Someone is considering taking a long term deposit. These are the rates:

12 months - 4.25% p.a
24 months - 5.00% p.a
36 months - 6.00% p.a
48 months - 6.25% p.a
60 months - 6.50% p.a

- If they choose to invest \$5000 for 60 months with interest paid at maturity,
what will their return be?
I'm guessing that interest compounds annually:
the value after 5 years will be 5000*(1.065)^5 = 6850.43

If you mean something else, reword your question properly;
as is, it makes little sense....
Denis is online now  
July 6th, 2018, 09:38 AM   #4
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Joined: Oct 2011
From: Ottawa Ontario, Canada

Posts: 12,765
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Quote:
Originally Posted by jshhndsd View Post
Someone is considering taking a long term deposit. These are the rates:

12 months - 4.25% p.a
24 months - 5.00% p.a
36 months - 6.00% p.a
48 months - 6.25% p.a
60 months - 6.50% p.a

- If they invest \$5000 in yearly increments (1, 2, 3, 4 & 5) (\$5000 for year 1
+ Balance paid at maturity reinvested for another 2 years and so forth.)
what will their return be? How many years will it take altogether using this
method?
This one makes no sense at all...sorry...
Please repost clearly.
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