Question

2. Suppose you decide to deposit $14,000 into a savings account that pays a nominal rate of 15.60%, but interest is compounded daily. Based on a 365-day year, how much would you have in your account after four months? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.)

$14,303.99

$14,451.45

$14,746.38

$15,041.31

3. In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he paid for the island was about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that Manhattan Island would be sold for $24, but you need to consider the future value (FV) of that price in more current times. If the $24 purchase price could have been invested at a 4.00% annual interest rate, what is its value as of 2017 (391 years later)?

$93,253,648.69

$109,710,174.93

$126,166,701.17

$144,817,430.91

Answer 1

2

Future value	FV=	PV * (1+rs/m)^mN
Present value	PV=	14,000
Stated rate of interest	rs=	15.60%
Number of years	N=	0.33
Frequency of compounding per year	m=	365
Future value	FV=	14000 *(1+ 0.156/365)^(0.33*365)
	FV=	14,746.33

Answer is

$14,746.38

3

Future value	FV=	PV * (1+rs/m)^mN
Present value	PV=	24
Stated rate of interest	rs=	4.00%
Number of years	N=	391.00
Frequency of compounding per year	m=	1
Future value	FV=	24 *(1+ 0.04/1)^(391*1)
	FV=	109,710,174.93

Answer is $109,710,174.93

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