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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

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

For the following investments, compute the amount of compound interest earned in 1 year and the annual percentage yield. Round APY to the nearest hundredth of a percent.

Principal Time Period (years) Interest Compounded New Table Factor Compound Interest
$8,500 12 Monthly _______ _______

To determine

To calculate: The amount of compound interest earned in 1 year and the annual percentage yield for an investment of $8,500 made at interest rate 12% that is compounded monthly. Round APY to the nearest hundredth of a percent.

Explanation

Given Information:

An investment of principal $8,500 made at interest rate 12% that is compounded monthly.

Formula used:

Interest rate per period:

It can be calculated by dividing the annual rate by the number of periods per year.

Interest rate per period=Nominal ratePeriodperyear

Compounding periods:

It can be calculated by multiplying the number of years by the number of periods per year.

Compounding period=Years×Periodperyear

Annual Percentage Yield:

It can be calculated by finding the total compound interest earned in 1 year and dividing it by the principal.

AnnualPercentageYield(APY)=Totalcompoundinterestearnedin1yearPrincipal

Compound amount:

It can be calculated by multiplying the table factor with principal.

Compoundamount(FV)=Tablefactor×Principal

Compound Interest:

It can be calculated by subtracting the principal from compound amount.

CompoundInterest=CompoundAmountPrincipal

Calculation:

The values of investment are:

Principal: $8,500

Nominal rate: 12

Interest compounded: monthly

Calculate the interest rate per period and number of compounding periods.

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

Interest rate per period=Nominal ratePeriodperyear=1212=1%

Substitute the values in the formula for compounding periods and simplify,

Compounding period=Years×Period per year=1×12=12

Thus, interest rate per period is 1% for 12 compounding periods

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Chapter 11 Solutions

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Sect-11.I P-6RESect-11.I P-7RESect-11.I P-8RESect-11.I P-9RESect-11.I P-10RESect-11.I P-11RESect-11.I P-12RESect-11.I P-13RESect-11.I P-14RESect-11.I P-15RESect-11.I P-16RESect-11.I P-17RESect-11.I P-18RESect-11.I P-19RESect-11.I P-20RESect-11.I P-21RESect-11.I P-22RESect-11.I P-23RESect-11.I P-24RESect-11.I P-25RESect-11.I P-26RESect-11.I P-27RESect-11.I P-28RESect-11.I P-29RESect-11.I P-30RESect-11.I P-31RESect-11.I P-32RESect-11.I P-33RESect-11.I P-34RESect-11.I P-35RESect-11.I P-36RESect-11.I P-37RESect-11.I P-38RESect-11.I P-39RESect-11.I P-40RESect-11.II P-6TIESect-11.II P-7TIESect-11.II P-8TIESect-11.II P-1RESect-11.II P-2RESect-11.II P-3RESect-11.II P-4RESect-11.II P-5RESect-11.II P-6RESect-11.II P-7RESect-11.II P-8RESect-11.II P-9RESect-11.II P-10RESect-11.II P-11RESect-11.II P-12RESect-11.II P-13RESect-11.II P-14RESect-11.II P-15RESect-11.II P-16RESect-11.II P-17RESect-11.II P-18RESect-11.II P-19RESect-11.II P-20RESect-11.II P-21RESect-11.II P-22RESect-11.II P-23RESect-11.II P-24RESect-11.II P-25RESect-11.II P-26RESect-11.II P-27RESect-11.II P-28RESect-11.II P-29RECh-11 P-1CRCh-11 P-2CRCh-11 P-3CRCh-11 P-4CRCh-11 P-5CRCh-11 P-6CRCh-11 P-7CRCh-11 P-8CRCh-11 P-9CRCh-11 P-10CRCh-11 P-11CRCh-11 P-12CRCh-11 P-13CRCh-11 P-14CRCh-11 P-1ATCh-11 P-2ATCh-11 P-3ATCh-11 P-4ATCh-11 P-5ATCh-11 P-6ATCh-11 P-7ATCh-11 P-8ATCh-11 P-9ATCh-11 P-10ATCh-11 P-11ATCh-11 P-12ATCh-11 P-13ATCh-11 P-14ATCh-11 P-15ATCh-11 P-16ATCh-11 P-17ATCh-11 P-18ATCh-11 P-19ATCh-11 P-20ATCh-11 P-21ATCh-11 P-22ATCh-11 P-23ATCh-11 P-24ATCh-11 P-25ATCh-11 P-26ATCh-11 P-27ATCh-11 P-28ATCh-11 P-29ATCh-11 P-30ATCh-11 P-31ATCh-11 P-32ATCh-11 P-33ATCh-11 P-34ATCh-11 P-35ATCh-11 P-36ATCh-11 P-37ATCh-11 P-38ATCh-11 P-39AT

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