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

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