Calculating the future value and effective rate
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15. Compute the compound amount and the interest on a loan of $10,800 compounded annually for five years at 8%.
Use the $1.00 future value table or the future value and compound interest formula.
16. John Smith has $9,000 that he plans to invest in a compound-interest-bearing instrument. His investment agent advises him that he can invest the $9,000 at8% compounded quarterly for three years or he can invest the $9,000 at 814% compounded annually for three years. Which investment should John Smith choose to receive the most interest? Use the $1.00 future value table or the future value and compound interest formula.
Choose the correct answer below.
A. 8% quarterly is the better deal.
B. 8 1/4% annually he better deal.
C. Both investments give equal interest.
17. Ross Land has a loan of $8,500 compounded quarterly for five years at 10%. What is the effective interest rate for the loan?
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Solution Summary
Solutions to given problems depict the steps to calculate future value and effective rate of interest.
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15.
Principal Amount=PV=$10800
Number of periods=n=5
Rate of interest per period=r=8%
Refer to $1.00 future value table for interest rate=8% and number of periods=5, we get
Future value factor=FVF=1.46933
Compound amount=FV=PV*FVF=10800*1.46933=$15868.76
Interest ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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