Question

Find the amount to which $700 will grow under each of these conditions:

1. 14% compounded annually for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

2. 14% compounded semiannually for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

3. 14% compounded quarterly for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

4. 14% compounded monthly for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

5. 14% compounded daily for 7 years. Assume 365-days in a year. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

6. Why does the observed pattern of FVs occur? 1-The future values increase because as compounding periods per year increase, interest is earned on interest less frequently. 2-The future values decrease because as compounding periods per year increase, interest is earned on interest more frequently. 3-The future values increase because as compounding periods per year increase, interest is earned on interest more frequently. 4-The future values increase because as compounding periods per year decrease, interest is earned on interest more frequently. 5- The future values decrease because as compounding periods per year decrease, interest is earned on interest more frequently.

Answer 1

a. FV with 14% compounded annually for 7 years =PV*(1+r)^n =700*(1+14%)^7 =1751.59

b. FV with 14% compounded semiannually for 7 years =PV*(1+r/n)^(n*t) =700*(1+14%/2)^(7*2) =1804.97

c.. FV with 14% compounded quarterly for 7 years =PV*(1+r/n)^(n*t) =700*(1+14%/4)^(7*4) =1834.12

d.  FV with 14% compounded monthly for 7 years =PV*(1+r/n)^(n*t) =700*(1+14%/12)^(7*12) =1854.57

e. FV with 14% compounded daily for 7 years =PV*(1+r/n)^(n*t) =700*(1+14%/365)^(7*365) =1864.77

f. Option 3 is correct option -The future values increase because as compounding periods per year increase, interest is earned on interest more frequently