due at the end of the term. 4%6years 20,000 20,000 Simple Interest Note 3 Now as
ID: 2425701 • Letter: D
Question
due at the end of the term. 4%6years 20,000 20,000 Simple Interest Note 3 Now assume that the interest on the notes is commounded annually. Calculate the amount of interest due at Calculate the amount of nterest due at the erd of the term for each note. When using th. Presnt Value aind Atre ale the Present Value and Future Value tables be round your answers to nearest dollar. Note 2 Finalily, assume that the interest on the notes is compounded semiannusly. Cakculate t the amount of interest due at the and of the term for each note. When using the Present Value and Future Value Finally, assume that the interest on the notes is tables be sure to use all the digits shown, Idrequired, round your answers to nearest dollar Note 2 Note 3 All other factors being equal, identify which of the following is an accurate statement regarding the choice of an investment? a. Higher interest rates, less frequent b. Higher interest rates, more frequent compounding, and a shorter term will increase the future value of an investment c. Higher interest rates, more frequent compounding, and a longer term wil increase the future value of an investment d. Lower interest rates, more frequent compounding, and a longer term wil increase the future value of an investment. and a longer term will increase the future value of an investment.Explanation / Answer
SIMPLE INTEREST.
Note 1 = 20000*0.04*6 = $4800
Note 2 = 20000*0.06*4 = $4800
Note 3 = 20000*0.08*3 = $4800
COMPOUND INTEREST (Annual compounding)
Note 1 = 20000*[FVIF(4,6) -1] = 20000*[1.2653-1] = $5,306
Note 2 = 20000*[PVIF(6,4) -1] = 20000*[1.2625-1] = $5,250
Note 3 = 20000*[PVIF(8,3) -1] = 20000*[1.2597-1] = $5,194
COMPOUND INTEREST (Semi-annual compounding)
Note 1 = 20000*[FVIF(2,12) -1] = 20000*[1.2682-1] = $5,364
Note 2 = 20000*[PVIF(3,8) -1] = 20000*[1.2668-1] = $5,336
Note 3 = 20000*[PVIF(4,6) -1] = 20000*[1.2653-1] = $5,306
Multiple choice question:
Answer is Option (c)
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