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Finite Mathematics for the Manager...

12th Edition
Soo T. Tan
ISBN: 9781337405782

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BuyFindarrow_forward

Finite Mathematics for the Manager...

12th Edition
Soo T. Tan
ISBN: 9781337405782
Textbook Problem

TRUST FUNDS A young man is the beneficiary of a trust fund established for him 21 years ago at his birth. If the original amount placed in trust was $ 10 , 000 , how much will he receive if the money has earned interest at the rate of 6% / year compounded annually? Compounded quarterly? Compounded monthly?

To determine

The amount that the young man will earn from the trust fund when it is compounded annually, when compounded quarterly and when compounded monthly.

Explanation

Given:

The fund invested was $10000.

The interest rate is 6%/year compounded monthly.

Time period is 21years.

Approach:

The expression of the accumulated amount.

A=P(1+rm)t×m...(1)

Here, A is the accumulated amount, P is the principal amount, r is the interest rate, t is the time period in years and m is the number of periods per year.

Calculation:

Calculate the present worth of the trust fund when compounded annually.

The period per year is,

m=1

Substitute $10000 for P, 6% for r, 21years for t and 1 for m in equation (1) to solve for A.

A=$10000(1+0.061)(21×1)=$10000(3.399563601)=$33995.64

Calculate the present worth of the trust fund when compounded quarterly.

The period per year is,

m=4

Substitute $10000 for P, 6% for r, 21years for t and 4 for m in equation (1) to solve for A

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