Question

E&-29 Future Equivalen when Iterstls Compounded Quarery Suppose that a S100 lmp-sum amount sinvesed fo eas at il interest rate .compounded quarety.How machistwothathen the d yer

Answer 1

Amount invested = $100

Interest rate = 6% compounded quarterly

Since, interest rate is compounded quarterly, we have to divide the interest rate by 4.

Adjusted interest rate (i) = 6/4 = 1.5%

Time period = 10 years

Since, interest rate is compounded quarterly, we have to multiply the time period by 4.

Adjusted time period (n) = 10 * 4 = 40

Calculate the value at the end of the 10^th year -

Value = Amount invested(F/P, i, n)

Value = $100(F/P, 1.5%, 40)

Value = $100 * 1.8140

Value = $181.40

Thus,

It is worth $181.40 at the end of the 10th year.