Chapter 5 Check My Work Click here to read the eBook Future

Chapter 5 Check My Work Click here to read the eBook: Future Values Click here to read the elook: Semiannual and Other d. 8% compounded mont,h, Check My Woek MacBook Air

Solution

The formula to be used to find the compound value of a lump sum if, Compounded annually is P*(1+r)^n and if compounded more than once in a year is P*(1+r/m)^(m*n), where P = Lumpsum amount r = the rate of interest per annum n = numer of years m = the frequency of compounding within a year. Substituting values, we have the FV as worked out below: a) FV = 800*(1.08)^6 = $       1,269.50 b) FV = 800*(1+0.08/2)^(6*2) = $       1,280.83 c) FV = 800*(1+0.08/4)^(6*4) = $       1,286.75 d) FV = 800*(1+0.08/12)^(6*12) = $       1,290.80 e) FV = 800*(1+0.08/365)^(6*365) = $       1,292.79 f) The effective rate of interest depends on the frequency of compouding.