Asked Oct 28, 2019

Give an example of mechanics of compounding.

check_circleExpert Solution
Step 1

Suppose principal amount is $20,000.

Interest rate is 7% compounded annually.

Step 2

The formula to calculate future value is given below:

Future value Present value x (1+ i)
i is interest rate,
n is number of periods

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Future value Present value x (1+ i) Here i is interest rate, n is number of periods

Step 3

To calculate fund value after 1 years, substitute $20,000 for p...

Future value $20,000 x (1 + 0.07)

Image Transcriptionclose

Future value $20,000 x (1 + 0.07) =$20,000x1.07 $21,400


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