Question

12. Compound interest. You invest $1000 in an account that pays 5% compounded annually. What is the balance after two years? 13. Compounding using different periods. You invest $2000 in an account that pays an APR of 6%. a. What is the value of the investment after three years if interest is compounded yearly? Round your

Answer 1

Ans :

12.

Formula to compute future value of sum invested at a rate of r for n number of years compounded yearly,

FV = PV * (1+r)ⁿ

FV = Future value = ?

PV = Present value = $1,000

r = rate of interest = 5%

n = number of years = 2 years.

Insert above data in the formula, FV = PV * (1+r)ⁿ

= $ 1,000 * (1+5%)²

= $ 1,000 *(1.05)²

= $ 1,000 *1.1025

= $ 1,102.5

13.

Formula to compute future value of sum invested at a rate of r for n number of years compounded yearly,

FV = PV * (1+r)ⁿ

FV = Future value = ?

PV = Present value = $2,000

r = rate of interest = 6%

n = number of years = 3 years.

Insert above data in the formula, FV = PV * (1+r)ⁿ

FV= $ 2,000*(1+6%)³

= 2,000*(1.06)³

= 2,000 *1.191016

= $ 2,382.032.