Question

If $12,000 is invested at 2.5% for 20 years, find the future value if the interest is compounded the following ways. (Round your answers to the nearest cent.)

(f) every minute (N = 525,600)
(g) continuously
(h) simple (not compounded)

Answer 1

f

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

Effective Annual Rate = ((1+2.5/525600*100)^525600-1)*100

Effective Annual Rate% = 2.53

Future value = present value*(1+ rate)^time

Future value = 12000*(1+0.0253151199025965)^20

Future value = 19784.66

g

EAR =[ e^(Annual percentage rate) -1]*100

Effective Annual Rate=(e^(2.5/100)-1)*100

Effective Annual Rate% = 2.53

Future value = present value*(1+ rate)^time

Future value = 12000*(1+0.0253151205244289)^20

Future value = 19784.66

h

FV = PV*(1+r*t)

=12000*(1+0.025*20)=18000