What sum would be available in seven years\' time if pound 3250 is invested now

Question

What sum would be available in seven years' time if pound 3250 is invested now with a compound interest rate of 11% per annum (use Equation 10.4) and Excel FV function)? What compound annual interest rate would cause pound 3.265 to grow to pound 5, 776 in six years' time (use Equation (10.4) and Excel RATE function)? Find the effective rate of interest which is equivalent to the following nominal rates (use Equation (10.6) and Excel function EFFECT): (a) 16% compounded half-annually. (b) 16% compounded quarterly. (c) 16% compounded monthly. (d) 16% compounded daily (1 year = 365 days.) Find the nominal rate, j. compounded monthly equivalent to 16% compounded semi-annually. At what nominal rate compounded monthly will pound 2000 amount to pound 4650 in six years' time (use Equation (10.4) and Excel RATE function)?

Explanation / Answer

10.4 Here,

P = 3250,

t = 7

r = 0.11

Hence,

FV = PV(1 + r)t

FV = 3250 (1 + 0.11)7

FV = 6747.52

Hence,

The amount after 7 years will be $6747.52

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