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Calculate the effective interest rate for tilak

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Tilak is keen to apply his finance knowledge to his real-life saving goals. He is currently 21 years of age and wishes to retire from full-time work at the age of 50 with $3 000 000 in savings.

a) How much will Tilak need to contribute at the end of each month in order to receive $3 000 000 at the age of 50 at a compound interest rate of 6.10% p.a.? (0.5 + 1 + 0.5 + 1 = 3 marks)

Show formula, variables, calculation and a concluding statement in your response.

b) How much will Tilak need to contribute at the start of each month in order to receive $3 000 000 at the age of 50 at a compound interest rate of 6.10% p.a.? Show formula, variables, calculation and a concluding statement in your response.

c) Explain why there is a difference between the two amounts determined in parts a) and b) above.

d) Calculate the effective interest rate for Tilak and explain what this number means.

e) Tilak wants to set up a college fund for his grandchild. He is aiming to be able to pass on $100 000 in 15 years' time. How much does Tilak need to set aside today into a college fund for his grandchild, assuming the fund earns 8.10% per annum?

Reference no: EM132785594

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