Question

Use the following information to answer the next three questions.

Periods Future Value of $1 at 12 Percent Future Value of Ordinary Annuity of $1 at 12 Percent Present Value of $1 at 12 Percent Present Value of Ordinary of $1 at 12 Percent 1 1.120 1.000 0.893 0.893 2 1.254 2.120 0.797 1.690 3 1.405 3.374 0.712 2.402 46.

A single deposit of $800 made at the beginning period 1 would grow to how much at the end of three years, assuming a 12 percent interest rate?

A. $1,254.
B. $ 896.
C. $1,124.
D. $2,699

Answer 1

The $800 deposit would grow to $1,124 at the end of three years with a 12% interest rate.

Step-by-step explanation:

To calculate how much the $800 deposit would grow to at the end of three years with a 12% interest rate, we can use the Future Value formula. The future value of $1 at 12% for three years is 1.405. So, the future value of $800 would be $800 multiplied by 1.405, which equals $1,124.

Answer 2

The alignment of numbers in the first part of the question is off. However, you solve this question as shown below. The correct answer is C. $1,124.

Step-by-step explanation:

This is a one-time cashflow type of question where the principal amount is invested once and no other addition is made to the account. You use the future value formula to solve the result of the compounding effect at year 3.

FV formula;

FV = PV(1+r)^n

PV = 800

discount rate; r = 12% or 0.12

total duration of investment; n = 3

therefore; FV = 800(1+0.12)^3

FV = 800 * 1.404928

FV = 1123.94

To the nearest whole dollar, the amount will grow to $1,124