Question

In: Finance

Juan Garza invested $111,000 3 years ago at 16 percent, compounded quarterly. How much has he...

Juan Garza invested $111,000 3 years ago at 16 percent, compounded quarterly. How much has he accumulated? Use Appendix A for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Solutions

Expert Solution

Formula:

Compute the interest rate if compounded quarterly using the equation as shown below:

Interest rate compounded quarterly = Annual rate / Number of quarters per year

= 16% / 4

= 4%

Hence, the interest rate if compounded quarterly is 4%.

Compute the period using the equation as shown below:

Period = Number of years * Number of quarters per year

= 3 * 4

= 12

Hence, the number of periods is 12.

Compute the total amount in 4 years using the equation as shown below:

Total amount = Invested amount * ( 1 + Rate) ^(Period)

= $111,000 * ( 1 + 4%) ^(12)

=$177714.5763

Hence, the total amount is $177,714.5763.

Using a Financial Calculator:

First, enter the number of periods which is 12, and then press N.

Then enter interest rate if compounded quarterly that is 4 and press I /Y

Then enter the invested amount in negative that is -$111,000 and then press CPT and then press FV.

The answer arrived would be $177,714.5763.


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