In this scenario, you will start with a big deposit and see how interest, compou
ID: 2780848 • Letter: I
Question
In this scenario, you will start with a big deposit and see how interest, compounding, and time will change the balance over time. Suppose that you inherit $10,000 from your late uncle. You save this money and do not deposit any more money to the account. Determine how much money you would have at the end of each of the periods for each of the scenarios in the table below, assuming that you don’t make any withdrawals from the account over the period.
Enter your answers in the indicated cells of the table below:
Annual Interest Rate
Interest Compounded
FV at the end of Year 5
FV at the end of Year 10
FV at the end of Year 30
2.00%
Annually
Answer:
Answer:
Answer:
2.00%
Quarterly
Answer:
Answer:
Answer:
8.00%
Annually
Answer:
Answer:
Answer:
8.00%
Quarterly
Answer:
Answer:
Answer:
Based on your calculations above, explain in your own words the impact of compounding interest
Annual Interest Rate
Interest Compounded
FV at the end of Year 5
FV at the end of Year 10
FV at the end of Year 30
2.00%
Annually
Answer:
Answer:
Answer:
2.00%
Quarterly
Answer:
Answer:
Answer:
8.00%
Annually
Answer:
Answer:
Answer:
8.00%
Quarterly
Answer:
Answer:
Answer:
Explanation / Answer
Annual Interest rate Interest Compounded FV at the end of Year 5 FV at the end of Year 10 FV at the end of Year 30 2% Annually $11,040.81 $12,189.94 $18,113.62 2% Quarterly $11,048.96 $12,207.94 $18,193.97 8% Annually $14,693.28 $21,589.25 $100,626.57 8% Quarterly $14,859.47 $22,080.40 $107,651.63 The formula to calculate the future value of fixed sum is as under, FV = P*(1+r)^n FV = Future value P = Present Sum invested i.e.$10000 r = rate per quarter or annum n = no.of compounding periods The impact of compunding = Due to quarterly compounding of interest , the future value of investment will be at higher compared to future value calculated using annual copounding.
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