We have to calculate the future value of making monthly deposits of $2000 in a bank that gives 4% interest compounded quarterly.
As the frequencies between the deposits and the compounding are different, we have to calculate a equivalent rate that compounds at the same frequency as the deposits (monthly) that keeps the same effective interest rate.
We have a nominal annual rate of 4% that compounds quarterly (m = 3). We can calculate the equivalent nominal annual rate as:
[tex]i=q\cdot\lbrack(1+\frac{r}{m})^{\frac{m}{q}}-1\rbrack[/tex]where m = 3 is the current compounding subperiod, q = 12 is the new compounding subperiod and r = 0.04 is the current annual rate.
We replace the values and calculate:
[tex]\begin{gathered} i=12\cdot\lbrack(1+\frac{0.04}{3})^{\frac{3}{12}}-1\rbrack \\ i\approx12\cdot(1.0133^{\frac{1}{4}}-1) \\ i\approx12\cdot(1.003316795-1) \\ i\approx12\cdot0.003316795 \\ i\approx0.0398 \end{gathered}[/tex]We can now use the interest rate i = 0.0398 compounded monthly as the equivalent rate.
We can calculate the future value of the annuity as:
[tex]FV=\frac{PMT}{\frac{i}{q}}\lbrack(1+\frac{i}{q})^{n\cdot q}-1\rbrack[/tex]Where PMT = 2000, i = 0.0398, q = 12 and n = 4.
We can replace with the values and calculate:
[tex]\begin{gathered} FV=\frac{2000}{\frac{0.0398}{12}}\cdot\lbrack(1+\frac{0.0398}{12})^{4\cdot12}-1\rbrack \\ FV\approx603015.075\cdot\lbrack(1+0.003317)^{48}-1\rbrack \\ FV\approx603015.075\cdot\lbrack1.1722636-1\rbrack \\ FV\approx603015.075\cdot0.1722636 \\ FV\approx103877.55 \end{gathered}[/tex]We get a future value of the annuity of $103,877.55.
We have some differences corresponding to the roundings made in the calculation, but this value correspond to the option $103,891.58.
Answer: $103,891.58
