Question

For each of the following questions be sure to create a list that outlines the values for N, C/Y-P/Y, I/Y, P.V., and F.V., as well as to show any subsequent calculations. Be sure to make a closing statement which addresses the question being asked.

A) How much interest will a six-year term deposit of $5000 at 6.5% compounded quarterly gain?

B) Find the principal that will amount to $1250 in 6 years at 10% p.a. compounded semi-annually.

C)What quarterly compounded interest rate would allow an investment to triple in 8 ½ years?

Answer #1

A)

Future value = present value * ( 1 + int rate )^no of periods

= 5000 * 1.01625^24

= 7361.79

Interest = future value - depoit amount = 7361.79 - 5000 = 2361.79

PV +-5000 N = 6.25/4 = 1.625 N = 6*4 = 24 CPT< FV

six-year term deposit of $5000 at 6.5% compounded quarterly will gain 2361.79

B)

Future value = Present value * ( 1 + int rate ) ^no of periods

1250 = Principal* 1.05^12

Principal = 1250 / 1.05^12 = 696.05

FV = 1250

N=6*2=12

I/Y = 10/2 = 5

CPT < PV

principal that will amount to $1250 in 6 years at 10% p.a. compounded semi-annuallY = 696.05

C)

Let the amount of money invested be 100

future value = 300

300 = 100 *( 1 +r) ^34

3^1/34 = ( 1+r)

r = 3.28

quarterly compunded int rate = 3.28*4 =13.12%

FV = 3

PV =+-1

N=34

CPT < I/Y

quarterly compounded interest rate would allow an investment to triple in 8 ½ years = 13.12%

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