Question

What is the future value of $200 in 20 years assuming an interest rate of 7 percent APR, compounded semiannually? O $773.94 O $752.26 O $24751 O $791.85 O $22776

Answer 1

D. $791.85

We simply need to find the FV of a lump sum using the equation:

FV = PV(1 + r)^t

It is important to note that compounding occurs semiannually. To account for this, we will divide the interest rate by two (the number of compounding periods in a year), and multiply the number of periods by two. Doing so, we get:

FV = $200[1 + (0.07/2)]²⁰⁽²⁾ = $791.85