Question

​(Compound

value​)

Stanford​ Simmons, who recently sold his​ Porsche, placed ​$9,800 in a savings account paying annual compound interest of 7 percent.

a. Calculate the amount of money that will have accrued if he leaves the money in the bank for 2​,5​,and 15 years.

b. If he moves his money into an account that pays 9 percent or one that pays 11 percent, rework part (a​) using these new interest rates.

c. What conclusions can you draw about the relationship between interest​ rates, time, and future sums from the calculations you have completed in this​ problem?

a. What is the accrued value of ​$9,800 in a savings account paying annual compound interest of 7 percent for 2 years?

Answer 1

Calculate the amount of money that will have accrued if he leaves the money in the bank for 2, 5 & 15 years

For 2 Years

FV=$9800*(1.07)^2

$                                                        11,220.02

For 5 Years

FV=$9800*(1.07)^5

$                                                        13,745.01

For 15 Years

FV=$9800*(1.07)^15

$                                                        27,038.51

b. If he moves his money into an account that pays 9 percent

For 2 Years

FV=$9800*(1.09)^2

$                                                        11,643.38

For 5 Years

FV=$9800*(1.09)^5

$                                                        15,078.51

For 15 Years

FV=$9800*(1.09)^15

$                                                        35,696.33

b. If he moves his money into an account that pays 11 percent

For 2 Years

FV=$9800*(1.11)^2

$                                                        12,074.58

For 5 Years

FV=$9800*(1.11)^5

$                                                        16,513.57

For 15 Years

FV=$9800*(1.11)^15

$                                                        46,888.98

c. What conclusions can you draw about the relationship between interest​ rates, time, and future sums from the calculations you have completed in this​ problem?

There is a positive relationship between time and future value as well as interest and future value.With the increase in maturity, the future value of the investment increases and with the increase in interest rate,it also increases.