1 Find the compound amount for the following deposits 470 at

1.    Find the compound amount for the following deposits $470 at 8% compounded semi-annually for 12 years .

2.   How does the priority of different security holders in bankruptcy liquidation affect the required rate of return on different securities. In other words, why do bond investors have lower required rates of return than do stock investors??

Thanks !!

Solution

Hi..

(1) Find the compound amount for the following deposits $470 at 8% compounded semi-annually for 12 years.

Take note that compound amount refers to the accumulated amount after the given number of years.So to solve, apply the formula for accumulated amount of compounding interest.

A=P(1+r/n)^(nt)

where:

A is the accumulated amount after t years

P is the principal amount

r is the rate

n is the number of compounding periods in a year, and

t is the number of years

Then, plug-in P=470, r=0.08 and t=12.. Also, since the rate is compunded semi-annually,, plug-in n=2.

A=470(1+0.08/2)^(2*12)

A=470(1.04)^24 A=1204.75

Hence, the compounded amount is $1204.75 .