5 6 pts What is the future value in 10 years of S5000 deposi

5. (6 pts) What is the future value in 10 years of S5000 deposited today if the nominal interest rate is deposited the interest is calculatedes 5%/year and the interest is calculated a) Quarterly b) Semi-annually c) Yearly

Solution

a.

We use the formula:

A=P(1+r/400)^4n

where

A=future value

P=present value

r=rate of interest

n=time period.

Hence

A=$5000(1+5/400)^(4*10)

which is equal to

=$8218.10(Approx)

b.

We use the formula:

A=P(1+r/200)^2n

where

A=future value

P=present value

r=rate of interest

n=time period.

Hence

A=$5000(1+5/200)^(2*10)
which is equal to

=$8193.08(Approx)

c.

We use the formula:

A=P(1+r/100)^n

where

A=future value

P=present value

r=rate of interest

n=time period.

Hence

A=$5000(1+5/100)^10

which is equal to
=$8144.47(Approx)(Please note that intermediate calculations have not been rounded off].