Question

Find the future value at time 4 of $5,000 now if the nominal annual discount rate is 4% compounded
semi annually.

Answer 1

Future value = Present value x (1 + Interest rate)^ No. of times of compounding
Interest rate per year = 4%
Compounding happens semi-annually, therefore two times a year
Hence, rate = 2% per compounding period
No. of times of compounding = 4 x 2 = 8
Future value = 5000 x (1+0.02)^8
5858.297
Answer = $5,858.297