Question

1. An investor wishes deposits $100 in a bank account for 5 years at 8% interest. Find out the amount which he will have in his account if interest is compounded (a) annually, (b) semi-annually, (c) quarterly and (d) continuously.

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.

A=$100*(1.08)^5

=$146.93(Approx).

2.We use the formula:
A=P(1+r/2)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$100*(1+0.08/2)^(2*5)

=$100*1.480244285

=$148.02(Approx).

3.We use the formula:
A=P(1+r/4)^4n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$100*(1+0.08/4)^(4*5)

=$100*1.485947396

=$148.59(Approx).

4.We use the formula:
A=P(e)^rn
where
A=future value
P=present value
r=rate of interest
n=time period.

e=2.71828

A=$100*(2.71828)^(0.08*5)

=$100*1.491824296

=$149.18(Approx).