subject: Several Time Equal Investments [print this page] Several Time Equal Investments Several Time Equal Investments
Recurring deposit of fixed amount at regular interval, popularly known as Deposit Pension Scheme (DPS). Investment in life insurance policy is such type of investment. Bank usually create customized products in form of;
a) annually,
b) half yearly,
c) quarterly, and
d) monthly deposit pension scheme.
Investors may also have two options for depositing fund as follows;
a) Opening term deposit (deposit at the beginning of the term),
b) Closing term deposit (deposit at the end of the term)
FORMULA:
For Opening Term Deposit;
For Closing Term Deposit;
Here,
FV = Future Value
PMT = Installment Amount
r = Interest Rate
n = Number of Year
i = Number of Times of Installment in a Year
EXAMPLE:
A) One reputed bank is offering at 12% interest rate in quarterly deposit pension. If an investor makes equal opening quarterly payment of Tk. 500 for 5 years in that scheme, how much will he have after 5 years?
Solution:
Ans: Tk. 13,838 (Approx).
B) Kamrul wishes to accumulate Tk. 100,000 by the end of 5 years by making equal end of the year deposits over the next 5 years. If Kamrul earn 11% interest on his investment, how much must he deposit at the end of year to meet this goal?
Solution:
Ans: Tk. 16,057 (Approx).
C) Determine future value at the end of 5 years a Tk. 1,000 of deposit for each end year and also withdraw Tk. 500 at the end of per year from 3 year to 5 year if interest rate is 10% yearly compounding.
Solution:
FV(3) = 3,310 500 = 2,810
FV(4) = {2,810 X (1+0.10)} 500 = 2,591
FV(5) = {2,591 X (1+0.10)} 500 = 2,350
Ans: Tk. 2,350 (Approx)
REVIEW:
a) All opening term deposit scheme are better than all closing term deposit scheme.
b) Among the four alternative products, monthly products with opening deposit are the best.
c) A continuous product is better than broken product for same period.
