Question

COMPOUND INTERESTI

Find the future value (compound amount) and the compound interest, as indicated, for

each of the following investments. Round answers to the nearest cent. Use a calculator

or Table 16-1 to find FVF.

Present

Term

Value

Rate

4 years

.S6,000

6% compounded monthly

2. $960

6% compounded semiannually

years

8 years

3.

S20,000

8% compounded quarterly

Answer 1

Future value formula:

FV = PV* (1+r)ⁿ; FV - future value, PV - present value, r - rate of return, n - number of periods

compound interest = FV-PV

1) PV = 6000

n = 12*4 = 48

r = 0.06/12 = 0.005

FV = 6000*(1+0.005)⁴⁸ = 7622.93

compound interest = 7622.93-6000 = 1622.93

2) PV = 960

n = 11*2 = 22

r = 0.06/2 = 0.03

FV = 960*(1+0.03)²² = 1839.46

compound interest = 1839.46-960 = 879.46

3) PV = 20000

n = 8*4 = 32

r = 0.08/4 = 0.02

FV = 20000*(1+0.02)³² = 37690.80

compound interest = 37690.80-20000 = 17690.80