Question

Each of the following people below has invested the following amounts today and will keep the money invested for the next ten years.  Determine the amount the investment will accumulate over the ten (10) year period.

	Investment amount today	Interest rate	Compounding
A	$50,000	6.0%	Quarterly
B	50,100	6.0%	Semiannually
C	50,000	6.0%	Monthly
D	50,500	6.0%	Annually

25. $__________ Determine the accumulated investment amount for A’s investment for the 10 year period(round to nearest dollar)?                                  

26. $___________ Determine the accumulated investment amount for B for the 10 year period(round to nearest dollar)?                      

27. $__________Of the four investments, the future value of the HIGHEST investment accumulation in 10 years (round to the nearest dollar) is:

Answer 1

(25)

future value = $50000 x 1.81402

= $90701

where,

interest rate = 6%/4 = 1.5%

time period = 10 x 4 = 40

FVF(1.5%, 40) = 1.81402

(26)

future value = $50100 x 1.80611

= $90486

where,

interest rate = 6%/2 = 3%

time period = 10 x 2 = 20

FVF(3%, 20) = 1.80611

(27)

future value of A’s investment = $90701

future value of B’s investment = $90486

now,

future value of C’s investment = $50000 x 1.81940

= $90970

where,

interest rate = 6%/12 = 0.5%

time period = 10 x 12 = 120

FVF(0.5%, 120) = 1.81940

and lastly,

future value of D’s investment = $50500 x 1.79085

= $90438

where,

interest rate = 6%

time period = 10

FVF(6%,10) = 1.79085

CONCLUSION: The future value of the highest investment accumulation in 10 years is $90970

i.e. C’s investment.