Question

Calculate the future sum of ​$8,000​, given that it will be held in the bank for 9 years at an APR of 4 percent.

Recalculate part a using compounding periods that are​ (1) semiannual and​ (2) bimonthly​ (every two​ months).

Recalculate parts a and b for an APR of 8 percent.

Recalculate part a using a time horizon of 18 years​ (the APR is still 4 ​percent).

With respect to the effect of changes in the stated interest rate and holding periods on future sums in parts c and d​, what conclusions do you draw when you compare these figures with the answers found in parts a and b​?

Answer 1

First part:

Particulars	Amount
Invesement	8,000
× FVF	1.42331
Future value	11,386.49

Second part:

Particulars		Semi annual	Bimonthly
Invesement		8,000	8,000
× FVF		1.42825	1.43162
Future value		11,425.97	11,452.94

Third part:

Particulars	Annual	Semi annual	Bimonthly
Invesement	8,000	8,000	8,000
× FVF	4.43545	4.71712	4.93412
Future value	35,483.63	37,736.96	39,473.00

Fourth part:

Particulars	Annual	Semi annual	Bimonthly
Invesement	8,000	8,000	8,000
× FVF	2.02582	2.03989	2.04953
Future value	16,206.53	16,319.10	16,396.24

Increase in interest rate will increase future value. Increase in compounding periods increases future value. Increase in number of years also increases future value.

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