Answer:
a. You are looking for an annuity that will give $41,000 in 5 years with a quarterly compounding rate of 4.25%.
Convert periods and interest to quarterly rate.
Period = 5 * 4 = 20 quarters
Interest = 4.25 / 4 = 1.0625%
41,000 = Annuity * ( [ 1 + i ] ^n - 1 )/i
41,000 = Annuity * ( [ 1 + 1.0625%]²⁰ - 1) / 1.0625%
41,000 = Annuity * 22.1534596596
Annuity = 41,000 / 22.1534596596
= $1,851
b. There were 20 payments of $1,851 made which totals:
= 1,851 * 20
Cash from deposits = $37,020
Cash from interest = 41,000 - 37,020 = $3,980
