Related to Checkpoint 5.2) (Compound interest with non-annual periods) You just

Question

Related to Checkpoint 5.2) (Compound interest with non-annual periods) You just received a bonus of $3,000 a. Calculate the future value of $3,000, given that it will be held in the bank for 10 years and earn an annual interest rate of 6 percent b. Recalculate part (a) using a compounding period that is (1) semiannual and (2) bimonthly c. Recalculate parts (a) and (b) using an annual interest rate d. Recalculate part (a) using a time horizon of 20 years at an annual interest rate of 6 percent. e. What conclusions can you draw when you compare the answers in parts (c) and (d) with the answers in parts (a) and (b)? a. What is the future value of $3,.000 in a bank account for 10 years at an annual interest rate of 6 percent? (Round to the nearest cent) Enter your answer in the answer box and then cick Choot h

Explanation / Answer

a) PV = 3000 Time (t) = 10, Rate = 6%
FV = PV*(1+r)n = 3000 * (1+6%)10 = 5372.54

b) 1) Semi Annual Compounding
FV = 3000 * ( 1+r/2)2n = 3000 * (1+6%/2)2*10 = 5418.33
2) Bimonthly cmpounding
FV = 3000* (1+r/6)6n = 3000* ( 1+6%/6)6*10 = 5450.09

c)Rate = 12%
FV = PV*(1+r)n = 3000 * (1+12%)10 = 9317.54
1) Semi Annual Compounding
FV = 3000 * ( 1+r/2)2n = 3000 * (1+12%/2)2*10 = 9621.41
2) Bimonthly cmpounding
FV = 3000* (1+r/6)6n = 3000* ( 1+12%/6)6*10 =9843.09

d) Rate = 6%, Number of Year (n) = 20
FV = PV*(1+r)n = 3000 * (1+6%)20 = 9621.41

e) The conclusion thatare dran is that highre the time perioid or higher the interets rate or more the number of compounding higher the future value.

Best of Luck. God Bless
Please rate well

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---