Question

​(Related to Checkpoint​ 5.2)  

​(Compound interest with​ non-annual periods​)

You just received a bonus of ​$1,000.

a.Calculate the future value of $1,000​, given that it will be held in the bank for 6 years and earn an annual interest rate of 3

percent.

b.Recalculate part

​(a​) using a compounding period that is​ (1) semiannual and​ (2) bimonthly.

c.Recalculate parts ​(a​) and ​(b​) using an annual interest rate of 6 percent.

d.Recalculate part ​(a​) using a time horizon of 12 years at an annual interest rate of 3 percent.

e.What conclusions can you draw when you compare the answers in parts ​(c​) and ​(d​) with the answers in parts ​(a​) and ​(b​)?

a.What is the future value of $1 comma 000in a bank account for 6 years at an annual interest rate of 3 percent?

​$__ (Round to the nearest​ cent.)

b. What is the future value of $1,000 in a bank account for 6 years at 3 percent compounded​ semiannually?

​$___ ​(Round to the nearest​ cent.)

What is the future value of $1,000 in a bank account for 6 years at 3 percent compounded​ bimonthly?

​$__ (Round to the nearest​ cent.)

c.What is the future value of $1,000 in a bank account for 6 years at an annual interest rate of 6 ​percent?

​$___ ​(Round to the nearest​ cent.)

What is the future value of $1,000 in a bank account for 6 years at 6 percent compounded​ semiannually?

​$___ ​(Round to the nearest​ cent.)

What is the future value of ​$1,000 in a bank account for 6 years at 6 percent compounded​ bimonthly?

​$____ (Round to the nearest​ cent.)

d.What is the future value of $1,000 in a bank account for 12 years at an annual interest rate of 3 percent?

​$____ ​(Round to the nearest​ cent.)

e.With respect to the effect of changes in the stated interest rate and holding periods on future​ sums, which of the following statements is​ correct?  ​(Select the best choice​ below.)

A. An increase in the stated interest rate will increase the future value of a given sum. ​ Whereas, an increase in the length of the holding period will decrease the future value of a given sum.

B. An increase in the stated interest rate will decrease the future value of a given sum. ​ Whereas, an increase in the length of the holding period will increase the future value of a given sum.

C. An increase in the stated interest rate will increase the future value of a given sum. ​ Likewise, an increase in the length of the holding period will increase the future value of a given sum.

D. An increase in the stated interest rate will decrease the future value of a given sum. ​ Likewise, an increase in the length of the holding period will decrease the future value of a given sum.

Answer 1