ISE331

PS5

4.86 Start saving for retirement immediately! Even a modest amount will add up in a hurry. Jay decides
to follow this advice and puts away 1% of his annual salary of $50,000 per year. This equates to $500 on
his 21st birthday, and his salary will increase by 2 %( on average) every year thereafter until jay turns 60
years old. What is the worth of Jay’s account at age 60 when the annual interest rate on Jay’s account is
4% per year?

4.99

a. If you are told that your effective annual interest rate is 10%, what is the nominal interest rate
compounded quarterly?
b. What is the effective annual interest rate if the nominal interest rate is 7%, and the frequency of
compounding is once a month?
c. How much time would it take for your principal to quadruple if the effective annual interest rate
5%, and the frequency of compounding is once a year?

4.122 Will receives $4,000 from his aunt when he turns 21 and he immediately invests the money in a
savings account. The account earns 12% annual interest, with continuous compounding. He gets his first
job after 5 years.

a. Determine the accumulated savings in this account at the end of 5 years.

b. Will wants to retire from work in 20 years. If he deposits $100 into his account every month for
the first 10 years, and $200 every month for the next 10, how much will he have after 20 years?
Assume he continues to earn 12% annual interest with continuous compounding?