An investor makes a single deposit of 10,000 into fund A for 10 years which earns a 6% effective rate of interest payable directly to the investor each year. During the first 5 years, the interest payments can only be reinvested into Fund B which earns 4% effective over the entire 10-year period. During the second 5 years, the interest payments can only be reinvested into Fund C which earns 5% effective.
An investor makes a single deposit of 10,000 into fund A for 10 years which earns a 6% effective rate of interest payable directly to the investor each year. During the first 5 years, the interest payments can only be reinvested into Fund B which earns 4% effective over the entire 10-year period. During the second 5 years, the interest payments can only be reinvested into Fund C which earns 5% effective.
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
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An investor makes a single deposit of 10,000 into fund A for 10 years which earns a 6%
effective rate of interest payable directly to the investor each year. During the first 5
years, the interest payments can only be reinvested into Fund B which earns 4% effective
over the entire 10-year period. During the second 5 years, the interest payments can
only be reinvested into Fund C which earns 5% effective.
Find the total accumulated value in Funds A, B and C combined at the end of 10
years and the overall yield rate achieved by the investor.
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