Find the following values for a lump sum assuming annual compounding: A What is

Question

Find the following values for a lump sum assuming annual compounding:

A What is the Future Value of $1000 invested at 6 percent for one year?

B What is the Future Value of $1000 invested at 6 percent for three years?

C What is the Present Value of $1000 to be received in one year when the opportunity cost rate is 6 percent?

D What is the Present Value of $1000 to be received in three years when the opportunity cost rate is 6 percent?

Repeat the problem (A – D) above assuming semiannual compounding.

Find the following values for a lump sum assuming annual compounding:

A What is the Future Value of $1000 invested at 6 percent for one year?

B What is the Future Value of $1000 invested at 6 percent for three years?

C What is the Present Value of $1000 to be received in one year when the opportunity cost rate is 6 percent?

D What is the Present Value of $1000 to be received in three years when the opportunity cost rate is 6 percent?

Repeat the problem (A – D) above assuming semiannual compounding.

Explanation / Answer

Based on annual compounding:

Future value of x = Present Value * (1 + r) n

Where r = interest rate per period, n = number of periods

Based on semi-annual compounding:

Future value of x = Present Value * (1 + r/2) 2n

Where r = interest rate per period, n = number of periods

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