Question

In how many years will $18,000 have an accumulated value of $20,642.15 if interest is 3.8% compounded monthly? Round the value of N to the higher whole number (e.g. if N = 2.13 it becomes N = 3), and Years to two decimal places if necessary.

Answer 1

Ans:

Present Value = 18,000

Future Value = 20,642.15

Interest (r) = 3.8%

N=?

We know

FV=PV(1+r/k)^n*k

Where FV=Future Value

PV=Present Value

r= Rate of interest

k=No.of times compounded in a year (that is 12)

n=No.of periods (months)

20.642.15=18000(1+0.038/12)^n*12

20.642.15/18000=(1+0.038/12)^n*12

(1+0.038/12)^n*12=1.1468

By refering to future value interest rate factor table

we get n = 3.61 years

Therefore by rounding off N=4 years.