Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
FUTURE VALUE FOR VARIOUS COMPOUNDING PERIODS Find the amount to which $500 will grow under each of these conditions:
- a. 12% compounded annually for 5 years
- b. 12% compounded semiannually for 5 years
- c. 12% compounded quarterly for 5 years
- d. 12% compounded monthly for 5 years
- e. 12% compounded daily for 5 years
- f. Why does the observed pattern of FVs occur?
a.
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.
Formula to calculate future value of money is,
Substitute $500 for present value, 12% for interest rate and 5 years for period for annually in equation (I)
b.
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.
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.
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.
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.
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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