Question

Kenneth Clark must decide how to invest $17,500 that he just inherited. What would be the future value of his investment after 5 years under each of the following three investment opportunities? (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)

a. 6.37 percent compounded quarterly.

Value of investment after 5 years

$

b. 6.11 percent compounded monthly.

Value of investment after 5 years

$

c. 6.00 percent compounded continuously.

Value of investment after 5 years

$

Answer 1

a.We use the formula:  
A=P(1+r/4)^4n
where   
A=future value
P=present value  
r=rate of interest
n=time period

A=17500*(1+0.0637/4)^(4*5)

=17500*1.371617

=$24003.3(Approx)

b.We use the formula:  
A=P(1+r/12)^12n
where   
A=future value
P=present value  
r=rate of interest
n=time period

A=17500*(1+0.0611/12)^(12*5)

=17500*1.356252

=$23734.41(Approx)

c.We use the formula:  
A=P(e)^rn
where   
A=future value
P=present value  
r=rate of interest
n=time period.

e=2.71828
  
A=17500*(2.71828)^(0.06*5)

=17500*1.349859

=$23622.53(Approx)