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All interest rates, discount rates, and IRR are annual both in questions and in answers. If...

All interest rates, discount rates, and IRR are annual both in questions and in answers. If interest is compounded monthly, divide interest rate by 12 to find the monthly rate; multiply monthly IRR by 12 to give an answer. Similarly, divide by 4 for quarterly, and by 2 for semi-annually compounding interest.

1. What is the future value of $400 saved at i= 40%, compounded annually, in 1 year?

2. What is the future value of $400 saved at i= 40%, compounded annually, in 2 years?

3. What is the future value of $400 saved at i= 40%, compounded semi-annually, in 2 years?

4. What is the future value of $400 saved at i= 40%, compounded quarterly, in 2 years?

Solutions

Expert Solution

1.

Future Value = 400(1.40) = $560

2.

Future Value = 400(1.40)2 = $784

3.

Future Value = 400(1 + 0.40/2)4 = $829.44

4.

Future Value = 400(1 + 0.40/4)8 = $857.44

jeff jeffy answered 2 years ago
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