Question

Problem 4-23 (algorithmic) :3 Question Help Suppose that $2,000 is placed in a bank account at the end of each quarter over the next 11 years. What is the future worth at the end of 11 years when the interest rate is 14% compounded at the given intervals? (a) Quarterly (b) Monthly (c) Continuously (a) The future worth will be $ 202477. (Round to the nearest dollar.) (b) The future worth will be $621119. (Round to the nearest dollar.)

Answer 1

If Compounded Quarterly:

Future Value (FV) = Amount Deposit (PV) x {1 + (r / 4)} ^n x 4

Future Value (FV) = $2,000 x {1 + (.14 / 4)} ^11 x 4

Future Value (FV) = $2,000 x (1.035) ^44

Future Value (FV) = $2,000 x 4.5433

Future Value (FV) = $9,086.6831 or $9,087

If Compounded Monthly:

Future Value (FV) = Amount Deposit (PV) x {1 + (r / 12)} ^n x 12

Future Value (FV) = $2,000 x {1 + (.14 / 12)} ^11 x 12

Future Value (FV) = $2,000 x (1.0116667) ^132

Future Value (FV) = $2,000 x 4.6232

Future Value (FV) = $9,246.3880 or $9,246

Note:

Here, r = Rate of Interest; n = Period