Question

If $2000 is invested at 2% interest, find the value of the investment at the end of 6 years if the interest is compounded as follows. (Round your answers to the nearest cent.)

Answer 1

Results are below.

Step-by-step explanation:

Giving the following information:

Initial investment= $2,000

Ineterest rate= 2%

Number of years= 6 years

First, we will calculate the future value if the interest is compounded annually, semiannually, and quarterly:

FV= PV*(1+i)^n

Annually:

n= 6

i= 0.02

FV= 2,000*(1.02^6)

FV= $2,252.32

Semiannually:

n=12

i= 0.02/2= 0.01

FV= 2,000*(1.01^12)

FV= $2,253.65

Quarterly:

n= 24

i=0.005

FV= 2,000*(1.005^24)

FV= $2,254.32

Now, if instead of compounding interest, it is simple interest:

FV= (PV*i*n) + PV

FV= (2,000*0.02*6) + 2,000

FV= $2,240