Question

Nick inherited $150,000, which he immediately invested into a fund that will earn 10% per annum. if interest is compounded semi-annually, in five years the investment will grow to

Answer 1

First calculate the effective interest rate because the problem says that the interest is compounded semi-annually. The formula for effective interest rate is ieff= [(1+i/n)^n] – 1. The calculated effective interest rate is 10.25%. The value of the investment in 5 years could be calculated using the equation, FV= PV (1+i)^n. The value of the investment then would be $244,334.194.