You recently got a new job where an amount equal to 9% of your projected non-deferred annual pay is deposited as a bonus at the end of each year into a trust. The trust pays 16.64% interest compounded quarterly, and you can only withdraw money from the trust at the end of five years. How much money will you have when you can withdraw it, if your projected non-deferred annual pay is expected to be 50,000 for the first three years and then 80,000 for the next two years?
I'm assuming that you are NOT a student but a business person......etc. If that's the case, maybe I can help you solve your problem:
1- Since the bonus payments are ANNUAL payments, at the end of each year, then we must convert the interest rate from quarterly compound into annual compound to match the stream of payments.
And so, your quarterly compound rate of 16.64%=17.71%.
2-Since the payments are 9% of your projected non-deferred annual pay of $ 50,000 for the first three years, then we have: 9% X $50,000=$4,500 per year for first 3 years.
3-Now we find out the FV of those payments at the rate of 17.71%, which comes to $16,031.60.
4-Since the bonus of 9% is based on $80,000 the last two years, then we have 9% X $80,000=$7,200 paid at end of last two years.
5-Now we find out the FV of these last two payments=$15,674.94
6-Finally, we add the amount in (5) to the FV of the amount in (3) above, and we get:
=$37,886.78, which is the amount you expect to have in 5 years.