Question

For the following investment, calculate the present value (principal) and the compound interest. Round your answers to the nearest cent.

Compound Amount	Term of Investment	Nominal Rate (%)	Interest Compounded	Present Value	Compound Interest
$11,500	36 months	2	semiannually	$	$

Answer 1

Compound Amount = $11,500

Term of Investment = 36 months

Nominal Rate = 2%

Interest Compounded: Semi annually

Number of compounding periods per year = 2

In 36 months or 3 years, there are 6 compounding periods.

A = P (1 + i)ⁿ

A = $11,500

i = 0.02 / 2 = 0.01

n = 6

11,500 = P (1 + 0.01)⁶

11,500 = P (1.01)⁶

11,500 = P * 1.06152

P = 11,500 / 1.06152

P = 10,833.52

Present Value = $10,833.52

Compound Interest = Compound Amount – Present Value

Compound Interest = 11,500 - 10,833.52

Compound Interest = $666.48