Question

Part 1: - What is the end-of-year wealth if Jane Christine receives a stated annual interest rate of 24% compounded monthly on a $1 investment? - Harry DeAngelo is investing $5,000 at a nominal interest rate of 12%, compounded quarterly, for five years. What is his wealth at the end of five years? - Linda Defond invested $1,000 at a continuously compounded rate of 10% for two year. What is the value of her investment at the end of two years?

Answer 1

$1.27

$9030.56

$2,210.34

Explanation:

The formula for calculating future value:

FV = P (1 + r/n)^nm

FV = Future value

P = Present value

R = interest rate

m = number of compounding

N = number of years

1. 1( 1 + 0.24 /12)^12 = $1.27

2. 5000 ( 1 + 0.12 /4)^( 5 x 4) = $9030.56

the formula for calculating future value when there is continuous compounding is : A x e^r x N

A= amount e = 2.7182818 N = number of years r = interest rate

3. 1000 x e^0.1 x 2 = $2,210.34