Question

What is the future value of $1,000 in 21 years assuming an interest rate of 8 percent compounded semiannually?

• $4,933.14

• $5,192.78

• $5,033.83

• $1,162.35

• $1,280.54

Answer 1

Option (b) is correct

Here we will use the following formula to calculate the required future value.

FV = P * (1+R%)ⁿ

where, FV = Future value , P = Present value, R = Rate of interest and n = no. of years

Present value = $1000

Rate of interest = 8% compounded semi annually or 4% semi annual rate

n = 21 years or 21 *2 = 42 semi annual years

Now, putting these values in the above equation, we get,

FV = $1000 * (1+4%)⁴²

FV = $1000 * (1+ 0.04)⁴²

FV = $1000 * (1.04)⁴²

FV = $1000 * 5.19278

FV = $5192.78, which is the required future value.