SSIA Investment

  • Thread starter Thread starter junior
  • Start date Start date
J

junior

Hey howya doin,

A quick question, Im trying to work out a practical example wit
relation to a Government Savings Incentive Scheme.

How would you set up the following investment problem,

The terms of an investment agreement prohibits any withdrawals of fund
over the agreed 5 Year period of the contract.
The Government pays an additional 25% of the saving per month and th
Financial Institution currently offers 1.5%annual Interest compounde
half yearly.

I dont know if thats phrased right, it makes sense in my head!
 
Hi Junior!

Check carefully that I've interpreted your data correctly.

I'm assuming a monthly deposit of $1000 per month with the first
payment made after one month. The government adds $250 to that
deposit.

We can calculate the accumulation using:

=FV((1+1.5%/2)^(2/12)-1,60,-1250,0,0)
Returns: 77824.6386786628

The amount deposited can be changed but the ratio of return won't;
thus for each dollar per month committed the investor gets $77.82
after 5 years.

The rate used is the monthly effective equivalent of 1.5% per annum
compounded half yearly.

We can nest this in a RATE function to show the effective rate of
return:

=(1+RATE(60,-1000,0,FV((1+1.5%/2)^(2/12)-1,60,-1250,0,0),0))^12-1
Returns: 10.6783091199304%

This rate of return won't vary with the amount per month committed.


--
Regards
Norman Harker MVP (Excel)
Sydney, Australia
(e-mail address removed)
Excel and Word Function Lists (Classifications, Syntax and Arguments)
available free to good homes.
 
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