Question

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

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 \$ \$

Homework Answers

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

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