Problem 9-25 Quarterly compounding [L05] Juan Garza invested $20,000 10 years ag

Question

Problem 9-25 Quarterly compounding [L05] Juan Garza invested $20,000 10 years ago at 12 percent, compounded quarterly. How much has he accumulated? (Hint:Remember the interest is for the year and as you are compound 4 times a year, you haveto adjust the interest accourdingly) Use Appendix A for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Input variables: $20,000 Investment amount Number of years Compounding frequency Interest rate Appendix factor 10 years 4 times per year 0.12 3.262 (multiply the number of years by the compounding frequency, divide the interest rate by the compounding frequency) Solution and Explanation: Future value Appendix value

Explanation / Answer

Future value:

Appendix value = 20000*3.262 = 65,240

Future value FV= PV * (1+rs/m)^mN Present value PV=                                 20,000 Stated rate of interest rs= 12.00% Number of years N= 10 Frequency of compounding per year m= 4 Future value FV= 20000 *(1+ 0.12/4)^(10*4) FV=                           65,240.76

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