Question

Determine the current amount of money that must be invested at 10% nominal interest, compounded monthly, to provide an annuity of $12,000 (per year) for 6 years, starting 12 years from now. the interest rate remains constant over this entire period of time.

Answer 1

Some chit funds are conducted as a savings scheme for a specific purpose. An example is the Deepavali sweets fund, which has a specific end date about a week before Deepavali. Neighbourhood ladies pool their savings each week. They use this fund to buy and prepare sweets in bulk just before the Deepavali festival, and they distribute sweets to all members. Preparation of Deepavali sweets may be a time consuming and costly activity for individuals. Such a chit reduces costs, and relieves members from extra work in a busy festival season. Nowadays, such special purpose chits are conducted by jewellery shops, kitchenware shops, etc. to promote their products.