# Compound Interest

5-1B. (Compound interest) To what amount will the following investments accumulate?

a. $4,000 invested for 11 years at 9 percent compounded annually

b. $8,000 invested for 10 years at 8 percent compounded annually

c. $800 invested for 12 years at 12 percent compounded annually

d. $21,000 invested for 6 years at 5 percent compounded annually

5-2B. (Compound value solving for n) How many years will the following take?

a. $550 to grow to $1,043.90 if invested at 6 percent compounded annually

b. $40 to grow to $88.44 if invested at 12 percent compounded annually

c. $110 to grow to $614.79 if invested at 24 percent compounded annually

d. $60 to grow to $78.30 if invested at 3 percent compounded annually

5-3B. (Compound value solving for i) At what annual rate would the following have to be invested?

a. $550 to grow to $1,898.60 in 13 years

b. $275 to grow to $406.18 in 8 years

c. $60 to grow to $279.66 in 20 years

d. $180 to grow to $486.00 in 6 years

5-4B. (Present value) What is the present value of the following future amounts?

a. $800 to be received 10 years from now discounted back to the present at 10 percent

b. $400 to be received 6 years from now discounted back to the present at 6 percent

c. $1,000 to be received 8 years from now discounted back to the present at 5 percent

d. $900 to be received 9 years from now discounted back to the present at 20 percent

https://brainmass.com/business/interest-rates/compound-interest-372511

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Compound Interest

5-1B. (Compound interest) To what amount will the following investments accumulate?

a. $4,000 invested for 11 years at 9 percent compounded annually

FV = PV(1 + r)n where PV is the present value

FV is the future value

r is the discount rate

n is the period

FV = 4,000(1 + 0.09)11

FV = 10,321.71

b. $8,000 invested for 10 years at 8 percent compounded annually

Then you can replace the information into the formula to find the answer.

FV = 17,271.40

c. ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer to what amount will the investments accumulate.

Simple and compound interest; present value concept; and TVM.

1. Explain what is the difference between "simple" and "compound" interest? Provide some of the uses of compound interest in business. What are the effects of using compound interest when evaluating future value transactions and calculations.

2. What is "present value"? What is an example of the "present value" concept? How does a single cash flow present value example differ from an annuity calculation?

3. How is a home mortgage an example of TVM? How can you show that more interest is paid at the beginning of a loan period than at the end?

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