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What's the future value of $55,000 after 20 years if the appropriate interest rate is 3%, compounded semiannually?

User Barroco
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1 Answer

5 votes

Answer:

$99,771

Step-by-step explanation:

future value = present value x (1 + interest rate)ⁿ

  • present value = $55,000
  • interest rate = 3% / 2 = 1.5% semiannual
  • n = 20 years x 2 = 40 semiannual periods

future value = $55,000 x (1 + 1.5%)⁴⁰ = $55,000 x 1.81402 = $99,771

When interest is compounded semiannually, the effective interest rate is slightly higher than when it is compounded annually.

effective interest rate = (1 + 3%/2)² - 1 = 3.0225%

User Rodrigo Taboada
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