Related to Checkpoint 5.2) (Compound interest with non-annual periods) You just

Question

Related to Checkpoint 5.2) (Compound interest with non-annual periods) You just received a bonus of $2,000. a. Calculate the future value of $2,000, given that it will be held in the bank for 6 years and earn an annual interest rate of 4 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 8 percent. d. Recalculate part (a) using a time horizon of 12 years at an annual interest rate of 4 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 $2,000 in a bank account for 6 years at an annual interest rate of 4 percent? S(Round to the nearest cent.)

Explanation / Answer

a.

future value=2000*(1+4%)^6=2530.64

b.

(1) future value=2000*(1+(4%/2))^(6*2)=2536.48

(2) future value=2000*(1+(4%/6))^(6*6)=2540.47

c.

future value=2000*(1+8%)^6=3173.75

future value=2000*(1+(8%/2))^(6*2)=3202.06

future value=2000*(1+(8%/6))^(6*6)=3221.91

d.

future value=2000*(1+4%)^12=3202.06

e.

the conclusion is that as the number of periods increases with the higher interest rates, the future value increase due to compounding.

the above are answers

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