Please show the work to the following question: You have $1,500 to invest today
ID: 2713179 • Letter: P
Question
Please show the work to the following question:
You have $1,500 to invest today at 7% interest compounded annually.
a) Find out how much will you have accumulated in the account at the end of number of
1. 3 years
2. 6 years
3. 9 years b)
Use your findings in part a to calculate the amount of interest earned in
1. the first 3 (years 1to 3)
2. the second 3 years (years 4 to 6)
3. the third 3 years (years 7 to 9)
c) Compare and contrast your findings in part b. Explain why the amount of interest earned increases in each succeeding 3-year period.
Explanation / Answer
Future value = P×(1+r)^n
P is present value
r is interest rate per period
n is number of periods
a)
For 3 years:
= $1,500×(1+7%)^3
= $1,837.56
For 6 years:
= $1,500×(1+7%)^6
= $2,251.10
For 9 years:
= $1,500×(1+7%)^9
= 2,757.69
b)
Interest for 1-3 years:
= $1,837.56-$1,500
= $337.56
Interest for 4-6 years:
= $2,251.10-$1,837.56
= $413.54
Interest for 7-9 years:
= $2,757.69-$2,251.10
= $506.59
c)
Because of compounding effect of interest, interest earned in each set of period is increasing.