Loose Leaf for Financial Accounting: Information for Decisions
9th Edition
ISBN: 9781260158762
Author: John J Wild
Publisher: McGraw-Hill Education
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Question
Chapter B, Problem 1QS
Summary Introduction
Concept Introduction:
Future value is the value of present money after a period of time. Future value of present money is calculated using the interest rate and period. The present value of a sum is multiplied with the future value factor to get the future value.
To identify: the interest rate column and number of period.
Expert Solution & Answer
Explanation of Solution
| Rate | Interest rate | Number of period | |
| 12% annual rate, compounded annually | 12% | 1 | The compounding is annual, hence the rate shall remain same and period shall be 1. |
| 6% annual rate, compounded semiannually | 3% | 2 | The compounding is semiannual, hence the rate shall be half and period shall be double. |
| 8% annual rate, compounded quarterly | 2% | 4 | The compounding is quarterly, hence the rate shall be one fourth and period shall be four times. |
| 12% annual rate, compounded monthly | 1% | 12 | The compounding is monthly, hence the rate shall be divided by 12 and period shall be multiplied by 12. |
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Chapter B Solutions
Loose Leaf for Financial Accounting: Information for Decisions
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Similar questions
- (1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? (2) What is the PV of the same stream? (3) Is the stream an annuity? (4) An important rule is that you should never show a nominal rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when INOM = EFF% = IPER.) What would be wrong with your answers to parts (1) and (2) if you used the nominal rate of 10% rather than the periodic rate, INOM/2 = 10%/2 = 5%?arrow_forwardYou 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 annuityarrow_forwardYou put $600 in the bank for 3 years at 15%. A. If Interest Is added at the end of the year, how much will you have in the bank after one year? Calculate the amount you will have in the bank at the end of year two and continue to calculate all the way to the end of the third year. B. Use the future value of $1 table In Appendix B and verify that your answer is correct.arrow_forward
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