The following table shows the annual effective interest rates being credited by an investment account,...
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The following table shows the annual effective interest rates being credited by an investment account, by calendar year of investment. Investment Year Rates Calendar Year of Original Investment y 1990 1991 1992 1993 1994 Portfolio Rates Calendar Year of Portfolio Rate y+3 (96) 10 12 10 1993 1994 1995 1996 1997 12 10 The investment year method is applicable for the first three years for each investment, after which a portfolio rate is used. An investment of 100 is made at the beginning of years 1990, 1991 and 1992. The total amount of interest credited by the fund during the year 1993 is equal to 28.40 Calculate T. (Note: That the values in the tables are percentages, so be careful when working with rs.) (a) 7.00 (b) 7.25 (c) 7.50 (d) 7.75 (e) 8.00 Hint: You are using the Investment Year Method, but you are working with three different deposits. Use the 1990 row for the first 100 deposit, use the 1991 row for the second 100 deposit and use the 1992 row for the third 100 deposit. Find the "future value" of each of these deposits at the start of 1993 and then multiply by the appropriate rate to find the interest earned by each of these deposits, in 1993. The sum of these interest values will be equal to 28.40
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