Question

Anthony and Michelle Constantino just got married and received $31,000 in cash gifts for their wedding. How much will they have on their twenty-fifth anniversary if they place half of this money in a fixed-rate investment earning 4 percent compounded annually. Would the future value be larger or smaller if the compounding period was 6 months? How much more or less would they have earned with this shorter compounding period? Click on the table icon to view the FVIF table . If they place half of this money, PV, in a fixed rate investment earning 4 percent compounded annually, the amount they will have, FV, on their twenty-fifth anniversary is $ (Round to the nearest cent.)

Answer 1

Future Value = Amount * (1+r)^n

Where,

r= Interest rate

n= Number of years

=31000*(1+0.04)^25

=$82640.93

If compounded six-monthly, the amount will be greater than above.

The amount would be

=31000*(1+0.04/2)^25*2

=$31000*1.02^50

=$83439.23

Note: Please note that if the amount as per the given FVIF table is rounded off, the answer would be different. If the answer does not match

let me know how many decimals rounded off so that I can change my answer.