Question

Determine the amount of money in a savings account at the end of 10 years, given an initial deposit of $10,000 and an annual interest rate of 16 percent when interest is compounded: Use Appendix A for an approximate answer, but calculate your final answer using the formula and financial calculator methods Future value a. Annually b. Semiannually c. Quarterly

Answer 1

1.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=$10000*(1.16)^10

=$10000*4.411435079

=$44114.35(Approx)

2.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=$10000(1+0.16/2)^(2*10)

=$10000*4.660957144

=$46609.57

3.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=$10000(1+0.16/4)^(4*10)

=$10000*4.801020628

=$48010.21(Approx)