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A bank has launched a three year structured deposit that offers an effective rate of interest of $8$% perannumfor the first $18$ months, $1.5$% per quarter for the next 6 months and $2$% per half year for the last 12months. If I wish to accumulate $100,000$ on the maturity date how much should I invest?

$100,000=X[(1.08)^{1.5}+(1.08)^{1.5}(1.00375)^2+(1.08)^{1.5}(1.00375)^2(1.01)^2]$

Solving for $X$ does not give the answer.

Tosh
  • 1,614

1 Answers1

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FV of the investment X at the end of 18 months:

$$FV_{18}= X(1.08)^{1.5}$$

This becomes the present value for the next period with different interest rate and for the next 6 months

$$FV_{24} = (X(1.08)^{1.5})\times(1.015)^2$$

$$FV_{36} = ((X(1.08)^{1.5})\times(1.015)^2)\times (1.02)^2$$

Thus $FV_{36} = 100,000$, Then find $X = 83,125$

Satish Ramanathan
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