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Foundations Of Financial Management
Found in: Page 283
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

Question: Determine the amount of money in a savings account at the end of 10 years, given an initial deposit of $5,500 and a 12 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly.

Answer

The future value in the savings account in case of annual, semi-annual and quarterly compounding is $17,082.17, $17,639.25 and $17,941.21, respectively.

See the step by step solution

Step by Step Solution

Step 1: Identification of the required information

Present value (PV) = $5,500

Periods for annual compounding (n1) = 10

Interest Rate for annual compounding (i1) = 12%

Periods for semiannual compounding (n2) = 20 (10*2)

Interest Rate for semiannual compounding (i2) = 12%

Periods for quarterly compounding (n3) = 20 (10*2)

Interest Rate for quarterly compounding (i3) = 3% (12%/4)

Step 2: Future value of savings account (FV) in case of annual compounding

Step 3: Future value of savings account (FV) in case of semiannual compounding

Step 4: Future value of savings account (FV) in case of quarterly compounding

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