Question

a. (Related to Checkpoint 5.2) (Compound interest with non-annual periods) You just received a bonus of $4,000 Calculate the future value of $4,000, given that it will be held in the bank for 10 years and earn an annual interest rate of 7 percent. b. Recalculate part (a) using a compounding period that is (1) semiannual and (2) bimonthly c. Recalculate parts (a) and (b) using an annual interest rate of 14 percent. d. Recalculate part (a) using a time horizon of 20 years at an annual interest rate of 7 percent. e. What conclusions can you draw when you compare the answers in parts (c) and (d) with the answers in parts (a) and (b)? a. What is the future value of $4,000 in a bank account for years at an annual interest rate of 7 percent? $ 7868.61 (Round to the nearest cent.) b. What is the future value of $4,000 in a bank account for 10 years at 7 percent compounded semiannually? $ 7959.16 (Round to the nearest cent.) What is the future value of $4,000 in a bank account for 10 years at 7 percent compounded bimonthly? $ 8022.44 (Round to the nearest cent.) c. What is the future value of $4,000 in a bank account for years at an annual interest rate of 14 percent? $ 14828.89 (Round to the nearest cent) What is the future value of $4,000 in a bank account for 10 years at 14 percent compounded semiannually? $ 15478.74 (Round to the nearest cent.) What is the future value of $4,000 in a bank account for 10 years at 14 percent compounded bimonthly? $ 15962.00 (Round to the nearest cent.) d. What is the future value of $4,000 in a bank account for 20 years at an annual interest rate of 7 percent? $ 15478.74 (Round to the nearest cent.) e. With respect to the effect of changes in the stated interest rate and holding periods on future sums, which of the following statements is correct? (Select the best choice below.) O A. An increase in the stated interest rate will decrease the future value of a given sum. Likewise, an increase in the length of the holding period will decrease the future value of a given sum OB. An increase in the stated interest rate will decrease the future value of a given sum. Whereas, an increase in the length of the holding period will increase the future value of a given sum. OC. An increase in the stated interest rate will increase the future value of a given sum. Likewise, an increase in the length of the holding period will increase the future value of a given sum. OD. An increase in the stated interest rate will increase the future value of a given sum. Whereas, an increase in the length of the holding period will decrease the future value of a given sum.

Answer 1

As I can see, only part (e) remains unanswered. The answer for part (e) is C

Stated interest rate and holding period are directly proportional to the amount of FV, increasing any of them will increase the future value, hence C is correct option.

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