Question

You are investing $20,000 for 40 years at 5% annual compounded interest.  Fill out a table that shows the future value of your investment using various intervals of compounding:  annual, quarterly, monthly, daily.  Your work should be represented in the following table.  Use normal rounding conventions and appropriate units.

COMPOUNDING INTERVAL	ANNUALLY	QUARTERLY	MONTHLY	DAILY
FORMULA USED
FUTURE VALUE

Answer 1

Compound Interest Formula:

(1) Compounding annually:

A = Future value (to be found)

P = Initial Principal balance = 20000

r = Inerest rate = 0.05

n = Number of times per year = 1

t = Number of years = 40

Substituting, we get:

= 140799.77

So,

Future value = 140799.77

(2) Compounding quarterly:

A = Future value (to be found)

P = Initial Principal balance = 20000

r = Inerest rate = 0.05

n = Number of times per year = 4

t = Number of years = 40

Substituting, we get:

= 145960.42

So,

Future value = 145960.42

(3) Compounding monthly:

A = Future value (to be found)

P = Initial Principal balance = 20000

r = Inerest rate = 0.05

n = Number of times per year = 12

t = Number of years = 40

Substituting, we get:

= 147168.35

So,

Future value = 147168.35

(4) Compounding daily::

A = Future value (to be found)

P = Initial Principal balance = 20000

r = Inerest rate = 0.05

n = Number of times per year = 365

t = Number of years = 40

Substituting, we get:

= 147760.88

So,

Future value = 147760.88

So,

Answer is:

	Compounding annually	Compounding quarterly	Compounding monthly	Compounding daily
Formula used
Future Value	140799.77	145960.42	147168.35	147760.88