Question

If you invest 5,000 to 8 years with an interest rate of 4.5% paid semi-annually, what is the terminal value? How much interest does this investment generate?

Answer 1

The calculations are made as under :

A = P(1+r/n)nt

Where as

A = The maturity Vallue

P = Principal amount

R=Rate of interest (in decible form)

n=t the no. of times to be comounded

t= the Time

The mauturity value will be as under :

= 5,000(1 + 0.045/2)(2)(8)

= 5,000(1 + 0.0225)(16)

= 5,000(1.0225)(16)

= 5,000*1.4276

= 7,138

Therefore the terminal value would be 7,138

The interest would be generated from this investment is = Maturity Value - Face Value

= 7,138 - 5,000 = 2,138