Question

For each of the following cases, indicate (a) what interest rate columns and (b) what number of periods you would refer to in looking up the future value factor.

(1) In Table 1 (future value of 1):

		Annual Rate		Number of Years Invested		Compounded
Case A		6%		5		Annually
Case B		8%		2		Semiannually

		(a)		(b)
Case A		%		periods
Case B		%		periods

(2) In Table 2 (future value of an annuity of 1):

		Annual Rate		Number of Years Invested		Compounded
Case A		5%		4		Annually
Case B		8%		10		Semiannually

		(a)		(b)
Case A		%		periods
Case B		%		periods

Answer 1

1.

	(a)	(b)
Case A	6%	5 periods
Case B	4%	4 periods

Notes:

For case A, it is compounded annually so the rate will be 6%/1 = 6% and the period will be 5/1 = 5

For case B, it is compounded semi-annually so the rate will be 8%/2 = 4% and the period will be 2/0.5 = 4

2.

	(a)	(b)
Case A	5%	4 periods
Case B	4%	20 periods

Notes:

For case A, it is compounded annually so the rate will be 5%/1 = 5% and the period will be 4/1 = 4

For case B, it is compounded semi-annually so the rate will be 8%/2 = 4% and the period will be 10/0.5 = 20