$5,100 invested for 9 years at 10 percent compounded annually will accumulate to
ID: 2702650 • Letter: #
Question
$5,100 invested for 9 years at 10 percent compounded annually will accumulate to $____ round to nearest cent.<?xml:namespace prefix = o />
a. A calculate the future value of $5,000, given that it will be held in the bank for 7 years and earn an annual interest rate of 6 percent..
b. Recalculate part (a) using a compounding period that is (1) semiannual and (2) bimonthly.
c. . Recalculate parts (a) and (b) using an annual interest rate of 12 percent.
d. Recalculate part (a) using a time horizon of 14 years at an annual interest rate of 6 percent.
e. What conclusions can you draw when you compare the answers in parts c and (d) with the answers in parts (a) and b)?
Explanation / Answer
12025.53
a.
5000*(1+.06)^7=7518.15
b.
5000*(1+.06/2)^(7*2) = 7562.95
5000*(1+.06/6)^(7*6) = 7593.95
c.
5000*(1+.12)^7 = 11053.40
5000*(1+.12/2)^(7*2) = 11304.52
5000*(1+.12/6)^(7*6) = 11486.22
d. 5000*(1+.06)^14 = 11304.52
I mean, more compoundings = more money, although the returns are less with each compouding. Also semiannual compoundings for 7 year will get the same return as twice the return annually.
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