Question

What is the difference in the future value of $100 at 7 percent interest for 5 years if the interest is compounded semiannually rather than annually?

Answer 1

FUture Value = PV(1+int rate)^N

where pv denotes present value and N denotes no of years

For Annual calculation = 100(1.07)^5 = 100(1.402552) =140.26

For Semi Annual calculation = interest rate = 7/2 = 3.5% and N = 10 (5*2)

Future value (semi annually ) = 100(1.035)^10 = 100(1.4106) = 141.06

the difference = 141.06-140.26 = .80 $