Chapter 11, Problem 2AT

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Using Table 11-1, calculate the compound amount and compound interest for the following investments. 2. $7,700 5 6 quarterly To determine To calculate: The compound amount and compound interest for an investment of$7,700 made for 5 years at 6% interest compounded quarterly using the compound interest table (Table 111).

Explanation

Given Information:

An investment with principal amount $7,700 made for 5 years at 6% interest compounded quarterly. Formula used: Interest rate per period: It can be calculated by dividing the annual rate by number of periods in each year. Interest rate per period=Nominal ratePeriodperyear Compounding periods: It can be calculated by multiplying the number of years by number of periods in each year. Compounding period=Years×Periodperyear Compound amount: It can be calculated by multiplication of the table factor with principal. Compoundamount(FV)=Tablefactor×Principal Compound Interest: It can be calculated by subtraction of the principal from compound amount. CompoundInterest=CompoundAmountPrincipal Compound Interest table: This table is a set of factors that represent future values of$1. The future values of further principal amounts can be calculated by multiplication of the correct table factor by the number of dollars of principal.

Steps for the use of the compound interest table:

Step I: The interest rate per period is computed by scanning across the top row.

Step II: Look below at that column to the row, which is same as the number of periods.

Step III: Find the compound amount by multiplying the table factor which is the intersection of corresponding rate-per-period column and the number-of-periods row.

Calculation:

The values of investment are:

Principal: \$7,700

Time-period: 5

Nominal rate: 6

Interest compounded: quarterly

Calculate the interest rate and number of compounding periods.

Substitute the values in the formula for interest rate per period and simplify,

Interest rate per period=Nominal ratePeriodperyear=64=1

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