Compound interest with nonannual periods A) Calculate the future sum of $3,000,

Question

Compound interest with nonannual periods

A) Calculate the future sum of $3,000, given that it will be held in the bank 7 years at an annual interest rate of 5 percent.

B) Recalculate part (A) using compounding periods that are (1) semiannual and (2) bimonthly (event two months).

C) Recalculate parts (A) and (B) for an annual interest rate of 10 percent

D) Recalculate part (A) using a time horizon of 14 years (annual interest rate is still 5 percent).

E) With respect to the effect of changes in the stated interest rate and holding periods on future sums in parts (C) and (D), what conclusions do you draw when you compare these figures with the answers found in parts (A) and (B)?

Explanation / Answer

Situations Annually Semiannully bimonthly A) Calculate the future sum of $3,000, given that it will be held in the bank 7 years at an annual interest rate of 5 percent. 4,221.30 B) Recalculate part (A) using compounding periods that are (1) semiannual and (2) bimonthly (event two months). 4,238.92 4,251.03 C) Recalculate parts (A) and (B) for an annual interest rate of 10 percent Part(A) 5,846.15 Part(B) 5,939.79 6,006.50 D) Recalculate part (A) using a time horizon of 14 years (annual interest rate is still 5 percent). 5,939.79 E) With respect to the effect of changes in the stated interest rate and holding periods on future sums in parts (C) and (D), what conclusions do you draw when you compare these figures with the answers found in parts (A) and (B)? Increase in interest rate and holding period , there is increase in future sum of amount invested. So situation C & D compare with A&B there is increase in future value not in same degree in situation A&B

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