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pcunniffpcunniff MilwaukeePosts: 30 Associate

Why on this question are you taking 4000 by the power of 6 vs 8? Refer to the solution below. I am confused as to why they are using 6 vs the power of 8. Can someone help?

A saver deposits the following amounts in an account paying a stated annual rate of 4%, compounded semiannually:

Year End of Year Deposits ($

1) 4,000

2) 8,000

3) 7,000

4) 10,000

Q.  At the end of Year 4, the value of the account is closest to:

  1. $30,432
  2. $30,447
  3. $31,677

B is correct. To solve for the future value of unequal cash flows, compute the future value of each payment as of Year 4 at the semiannual rate of 2%, and then sum the individual future values, as follows:

YearEnd of Year Deposits ($)FactorFuture Value ($)

1 4,000(1.02)^6 =4,504.65

2 8,000(1.02)^4 =8,659.46

3 7,000(1.02)^2 = 7,282.80

4 10,000(1.02)^0 = 10,000.00  

Sum =30,446.91


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