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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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FUTURE VALUE FOR VARIOUS COMPOUNDING PERIODS Find the amount to which $500 will grow under each of these conditions:

  1. a. 12% compounded annually for 5 years
  2. b. 12% compounded semiannually for 5 years
  3. c. 12% compounded quarterly for 5 years
  4. d. 12% compounded monthly for 5 years
  5. e. 12% compounded daily for 5 years
  6. f. Why does the observed pattern of FVs occur?

a.

Summary Introduction

To calculate: future value of cash at 12% compounded annually for 5 years.

Future value of cash flow: If a single cash flow is currently invested with a compound interest, then its growth over the period of time is known as future value of cash flow.

Explanation

Formula to calculate future value of money is,

Futurevalue=Presentvalue×(1+interestrate)Period (I)

Substitute $500 for present value, 12% for interest rate and 5 years for period for annually in equation (I)

b.

Summary Introduction

To calculate: Future value of cash at 12% compounded semiannually for 5years.

Future value of cash flow: If a single cash flow is currently invested with a compound interest, then its growth over the period of time is known as future value of cash flow.

c.

Summary Introduction

To compute: Future value of cash at 12% compounded quarterly for 5 years.

Future value of cash flow: If a single cash flow is currently invested with a compound interest, then its growth over the period of time is known as future value of cash flow.

d.

Summary Introduction

To compute: Future value of cash at 12% compounded monthly for 5 years.

Future value of cash flow: If a single cash flow is currently invested with a compound interest, then its growth over the period of time is known as future value of cash flow.

e.

Summary Introduction

To compute: Future value of cash at 12% compounded daily for 5 years.

Future value of cash flow: If a single cash flow is currently invested with a compound interest, then its growth over the period of time is known as future value of cash flow.

f.

Summary Introduction

To explain: Reason for the occurrences of this observed pattern in face value.

Future value of cash flow: If a single cash flow is currently invested with a compound interest, then its growth over the period of time is known as future value of cash flow.

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