Question

Determine the future value of $1,200 after 4 years under the following assumptions:

a) Interest is compounded annually at 12%

b) Interest is compounded semiannually at 12%

c) Interest is compounded quaterly at 16%

d) Interest is compounded monthly at 24%

Answer 1

a.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=1200*(1.12)^4

=1200*1.57351936

=$1888.22(Approx).

b.We use the formula:
A=P(1+r/2)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=1200*(1+0.12/2)^(2*4)

=1200*1.59384807

=$1912.62(Approx)

c.We use the formula:
A=P(1+r/4)^4n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=1200*(1+0.16/4)^(4*4)

=1200*1.87298125

=$2247.58(Approx)

d.We use the formula:
A=P(1+r/12)^12n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=1200*(1+0.24/12)^(12*4)

=1200*2.58707039

=$3104.48(Approx).