Explanation a. Calculate the future value if interest rate compounded annually is as follows: F V = P V ( 1 + r m ) n × m = $ 500 × ( 1 + 12 % 1 ) 20 × 1 = $ 500 × ( 1.12 ) 20 = $ 500 × 9.64629309327495 = $ 4 , 823.14654663747 or $4,823 .15 Therefore, the future value is $4,823 .15 . b. Calculate the future value if interest rate compounded quarterly is as follows: F V = P V ( 1 + r m ) n × m = $ 500 × ( 1 + 12 % 4 ) 20 × 4 = $ 500 × ( 1

CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

5th Edition

ISBN: 9781305661653

Author: Scott Besley, Eugene Brigham

Publisher: Cengage Learning

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Question

Chapter 4, Problem 3PROB

Summary Introduction

F plans to invest $500 for 20 years at 12%. The future value is to be calculated at different compounding periods.

Future value is the value of the current investment or series of payments in the future compounded at predetermined interest rate for a specified period.

FV=PV(1+rm)n×m

Here,

The future value is “FV”.

The present value is “PV”.

The interest rate is “r”.

The maturity period of time period is “n”.

The no of compounding in a year is “m”.

Expert Solution & Answer

Chapter 4 Solutions

CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

Ch. 4 - Prob. 1PROB Ch. 4 - Prob. 2PROB Ch. 4 - Prob. 3PROB Ch. 4 - Prob. 4PROB Ch. 4 - Prob. 5PROB Ch. 4 - Prob. 6PROB Ch. 4 - Prob. 7PROB Ch. 4 - Prob. 8PROB Ch. 4 - Prob. 9PROB Ch. 4 - Prob. 10PROB

Ch. 4 - Prob. 11PROB Ch. 4 - Prob. 12PROB Ch. 4 - Prob. 14PROB Ch. 4 - Prob. 15PROB Ch. 4 - Prob. 16PROB Ch. 4 - Prob. 17PROB Ch. 4 - Prob. 18PROB Ch. 4 - Prob. 19PROB Ch. 4 - Prob. 20PROB Ch. 4 - Prob. 21PROB Ch. 4 - Prob. 22PROB Ch. 4 - Prob. 23PROB Ch. 4 - Prob. 24PROB Ch. 4 - Prob. 25PROB

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Similar questions

You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuity

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