Q.7. Assume that it is now January 1, 2009. On January 1, 2010 you will deposit Rs. 1000 into a savings
account that pays 8 percent.

(a) If the bank compounds interest annually, how much will you have in your account on January 1,
2013? (5)

(b) What would your January 1, 2013, balance be if the bank used quarterly compounding rather
than annual compounding? (5)

(c) Suppose you deposited Rs. 1000 in four payments of Rs. 250 each on January 1, 2010, 2011,
2012 and 2013. How much would you have in your account on January 1, 2013, based on 8
percent annual compounding? (5)

(d) Suppose you deposited four equal payments in your account on January 1 of 2010, 2011, 2012
and 2013. Assuming an 8 percent interest rate, how large would each of your payment have to
be for you to obtain the same ending balance as you calculated in part (a)? (5)

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"We overestimate next one or two years and we underestimate next ten years."