Question

Find the amount to which $600 will grow under each of these conditions:

A. 12% compounded annually for 5 years. Do not round intermediate calculations. Round your answer to the nearest cent.

B. 12% compounded semiannually for 5 years. Do not round intermediate calculations. Round your answer to the nearest cent.

C. 12% compounded quarterly for 5 years. Do not round intermediate calculations. Round your answer to the nearest cent.

D. 12% compounded monthly for 5 years. Do not round intermediate calculations. Round your answer to the nearest cent.

E. 12% compounded daily for 5 years. Do not round intermediate calculations. Round your answer to the nearest cent

Answer 1

Step 1:

PV = Present value = $600

R = Rate = 12%

N = Years = 5

m = frequency = number of periods in a year – this will differ on case to case basis

FV = Future value = ?

.

Step 2:

Formula:

Future value = Present value x (1+Rate/frequency)^(Years x Frequency)

FV = PV x (1+R/m)^(N x m)

Step 3:

FV = PV x (1+R/m)^(N x m)

.

A.

m = 1

FV = 600*(1+12%/1)^(5*1) = 600*1.762341683 = $1,057.41

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B.

m = 2

FV = 600*(1+12%/2)^(5*2) = 600*1.790847697 = $1,074.51

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C.

m = 4

FV = 600*(1+12%/4)^(5*4) = 600*1.806111235 = $1,083.67

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D.

m = 12

FV = 600*(1+12%/12)^(5*12) = 600*1.816696699 = $1,090.02

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E.

m = 365

FV = 600*(1+12%/365)^(5*365) = 600*1.821939133 = $1,093.16