Question

Imagine that 50 years ago, your aunt made an investment of $10 into an account that...

Imagine that 50 years ago, your aunt made an investment of $10 into an account that earned 12% each year. What is the effect of compounding? (Round to 2 decimal places, do not include dollar signs in your response.)

Homework Answers

Answer #1

Compounding of interest means interest is earned not only on principal amount but also on the interest amount earned every year , thus compound interest is interest on interest

Here Amount deposited = $10 , r = rate of interest = 12% , n = no of years = 50

Thus FV = PV(1+r)^n

=10(1+12%)^50

=10(1+0.12)^50

= 10(1.12)^50

= 10 x 289.002

= 2890.02 $

Thus after 50 years amount in account if interest is compounded annually = 2890.02 $

Instead of compound interest if account was earning simple interest than

Interest = 10 $ x 12% x 50

= 60 $

Thus after 50 years amount in account = 10 + 60 = 70$

Thus it can be seen that if interest is compounded , than it will generate huge wealth

Ans: Amount after 50 years = 2890.02

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have an investment account that started with ​$1,000 10 years ago and which now has...
You have an investment account that started with ​$1,000 10 years ago and which now has grown to ​$7,000. a. What annual rate of return have you earned​ (you have made no additional contributions to the​ account)? b. If the investment account earns 14% per year from now​ on, what will the​ account's value be 10 years from​ now? a. What annual rate of return have you earned​ (you have made no additional contributions to the​ account)? Your annual rate...
1- Twelve years ago, you placed $1000 in an account that earns a 6% annual return....
1- Twelve years ago, you placed $1000 in an account that earns a 6% annual return. Assuming that you made no withdrawals, how much money would you have in the account today? Round your final answer to two decimals. Do not use dollar signs or words when entering your response. 2- A savings bond will be worth $2000 when it matures in 15 years, but you need cash today. If the current interest rate is 5%, what is your bond...
An insurance company made an investment of $1 million four years ago into a reserve account....
An insurance company made an investment of $1 million four years ago into a reserve account. The interest rate was 4.6% a year with weekly compounding (52 weeks in a year). How much money does the firm have in the account today? 5 points The firm expects to pay out $20,000 a month from this account while earning 0.5% a month on the money. What will the firm have in the account seven years from now? 5 points BAII PLUS...
An investment of $5,610 made five years ago in a stock mutual fund that earned an...
An investment of $5,610 made five years ago in a stock mutual fund that earned an annual compound return of 6.8% during the initial three years, followed by an annual compound return of 4% over the most recent two years would be worth how much today? Note: Please round your answer to the nearest dollar. For example, if the calculated value of the investment today is 1,234.78 enter it as: 1235 or 1,235.
ou have just made your first $5,200 contribution to your retirement account. Assume you earn a...
ou have just made your first $5,200 contribution to your retirement account. Assume you earn a return of 12 percent per year and make no additional contributions. a. What will your account be worth when you retire in 43 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What if you wait 10 years before contributing? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an...
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years, and 6.5%, compounded annually, for the last five years. Required: 1. a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10 years? 2. b) How much money do you have in your account today? 3. c) If you wish to...
Mr. Gonzales has made beginning-of-year deposits into an investment account for the past 21 years. Each...
Mr. Gonzales has made beginning-of-year deposits into an investment account for the past 21 years. Each deposit was $5500, and the account earned interest at a rate of 4.5% APR, compounded quarterly, each year. Having made his last deposit one year ago, he now plans to transfer all of the accumulated funds today into a money-market account that earns an APR of 1.50% compounded quarterly. If he plans to withdraw $4000 from the account at the end of each quarter...
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an...
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years, and 6.5%, compounded annually, for the last five years. Required: a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10 years? b) How much money do you have in your account today? c) If you wish to have $85,000 now,...
An investment offers $4,800 per year for 19 years, with the first payment occurring one year...
An investment offers $4,800 per year for 19 years, with the first payment occurring one year from now. If the required return is 11 percent, the present value of the investment is $  . If the payments occurred for 31 years, the present value of the investment would be $  . If the payments occurred for 81 years, the present value of the investment would be $  . If the payments last forever, the present value would be $  (Do not include the dollar...
Present Value Computation Pete Frost made a deposit into his savings account 3 years ago, and...
Present Value Computation Pete Frost made a deposit into his savings account 3 years ago, and earned interest at an annual rate of 8%. The deposit accumulated to $20,000. How much was initially deposited assuming that the interest was compounded (a) annually, (b) semiannually, and (c) quarterly? Use Excel or a financial calculator for computation. Round your answer to nearest dollar. (a) Annually Answer (b) Semiannually Answer (c) Quarterly Answer