Question

1. What is the EAR if the APR is 15 percent compounded daily? Enter answer with 4 decimals (e.g. 0.1234)

2. What is the future value of $5,735 in 24 years assuming an interest rate of 12 percent compoundedmonthly?

Answer 1

1.Effective annual rate is calculated using the below formula:

EAR= (1+r/n)^n - 1

Where r is the interest rate and n is the number of compounding periods in one year.

EAR= (1+0.015/365)^365 - 1

= 1.1618 - 1

= 0.1618*100

= 16.18%.

2.Information provided:

Present value= $5,735

Time= 24 years*12 = 288 months

Interest rate= 12%/12 = 1% per month

Enter the below in a financial calculator to compute the future value :

PV= -5,735

N= 288

I/Y= 1

Press the CPT key and FV to compute the future value.

The value obtained is 100,713.82.

Therefore, the future value is $100,713.82.