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Future Value Calculation for $1,610

The document contains exercises related to calculating future value (FV) and present value (PV) using compound interest formulas. It includes multiple examples with varying interest rates, compounding periods, and terms, providing answers rounded to two decimal places. The exercises aim to compare different compounding methods and their profitability over specified time frames.

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67 views7 pages

Future Value Calculation for $1,610

The document contains exercises related to calculating future value (FV) and present value (PV) using compound interest formulas. It includes multiple examples with varying interest rates, compounding periods, and terms, providing answers rounded to two decimal places. The exercises aim to compare different compounding methods and their profitability over specified time frames.

Uploaded by

samalexandrous
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

MA 101 Business Math Page |1

BM 7-9 Exercises
BM7-9 Compound interest

1. Calculate FV. Round to 2 decimal places


P 6.0
PV $2,000 i= =6 % n=1×5=5
V 1
Rate j 6.0% 1+0.06 ¿5
Term t 5 years 2000 ¿
Compounding m annually 1.06 ¿
5

2000 ¿
F
FV ??? 2000(1.33822558)
V

Answer = 2,676.45

2. Calculate FV. Round to 2 decimal places


P 7.75
PV $2,458 i= =1.94 % n=4 × 1=4
V 4
Rate j 7.75% 1+0.0194 ¿
4

Term t 1 years 2458 ¿


Compounding m quarterly 1.0194 ¿4
2458¿
F ¿
FV ???
V 2458 ¿ 1.07988751)

Answer = 2,654.36

3. Calculate PV. Round to 2 decimal places


F 9.0
FV $5,148.60 i= =4.50 % n=2× 25=50
V 2
Rate j 9.0% 1+0.045 ¿−50
Term t 25 years 5148.60 ¿
Semi- −50
Compounding m 1.045 ¿
annually 5148.60 ¿
P ¿
PV ??? 5148.60 ¿ 0.11070965)
V
Answer = 570.00

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MA 101 Business Math Page |2

4. Calculate PV. Round to 2 decimal places


F 5.25
FV $8,340.49 i= =5.25 % n=1×10=10
V 1
Rate j 5.25% 1+0.0525 ¿−10
Term t 10 years 8340.49 ¿
Compounding m Annually 1.0525 ¿−10
P 8340.49 ¿
PV ??? ¿
V
8340.49 ¿ 0.599485875)
Answer = 5,000.01

5. Calculate FV. Round to 2 decimal places


P 6.0
PV $1,200 i= =0.5 % n=12×12=144
V 12
Rate j 6.0% 1+0.005 ¿144
Term t 12 years 1200 ¿
Compounding m monthly 1.005 ¿
144

1200 ¿
F ¿
FV ??? 1200 ¿ 2.05075082)
V

Answer = 2,460.90

6. Calculate PV. Round to 2 decimal places


F 3.50
FV $11,583.19 i= =0.875 % n=4 × 11=44
V 4
Rate j 3.50% 1+0.00875 ¿−44
Term t 11 years 11583.19 ¿
Compounding m quarterly 1.00875 ¿
−44

11583.19 ¿
P ¿
PV ???
V 11583.19 ¿ 0.681591083)

Answer = 7,895.00

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MA 101 Business Math Page |3

7. Calculate FV. Round to 2 decimal places


P 4.20
PV $10,000 i= =2.1 % n=2× 6=12
V 2
Rate j 4.20% 1+0.021 ¿
12

Term t 6 years 10000 ¿


Semi-
Compounding m 1.021¿ 12
annually 10000 ¿
F
FV ??? 10000(1.283243)
V
Answer = 12,832.43

8. Calculate PV. Round to 2 decimal places


F 2.25
FV $15,611.76 i= =0.1875 % n=12×25=300
V 12
Rate j 2.25% 1+0.001875 ¿−300
Term t 25 years 15611.76 ¿
Compounding m monthly 1.001875 ¿
−300

15611.76 ¿
P ¿
PV ???
V 15611.76 ¿ 0.570083)

Answer = 8,900.00

9. Calculate FV. Round to 2 decimal places


P 1.50
PV $7,500 i= =0.375 % n=4 × 30=120
V 4
Rate j 1.50% 1+0.00375 ¿120
Term t 30 years 15611.76 ¿
Compounding m quarterly 1.00375 ¿120
15611.76 ¿
F ¿
FV ??? 15611.76 ¿ 1.56699278)
V

Answer = 24,463.52

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MA 101 Business Math Page |4

10. Calculate PV. Round to 2 decimal places


F 1.50
FV $7,613.28 i= =0.125 % n=12×1=12
V 12
Rate j 1.50% 1+0.00125 ¿
−12

Term t 1 year 7613.28 ¿


Compounding m monthly 1.00125 ¿−12
7613.28 ¿
P ¿
PV ???
V 7613.28 ¿ 0.985121167)

Answer = 7,500.00

Compare different term, interest or compounding periods.

11. Calculate FV. Round to 2 decimal places


P
PV $4,230 Calculate the FV for each compounding period and
V
determine which compounding period is more
Rate j 7.50%
profitable.
Term t 20 years
1+0.075 ¿20
4230 ¿
7.50 1.075 ¿
20
i= =7.5 %
Compounding m Annually 1 4230 ¿
n=1× 20=20 ¿
4230 ¿ 4.2478511)
=17,968.41
1+0.0375 ¿40
4230¿
7.50 1.0375 ¿
40
Semi- i= =3.75 %
Compounding m 2 4230 ¿
annually
n=2× 20=40 ¿
4230 ¿ 4.36037876)
=18,444.40
1+0.01875 ¿80
4230 ¿
7.50
i= =1.875 % 1.01875 ¿80
Compounding m Quarterly 4
4230 ¿
n=4 × 20=80
4230 ( 4.41987248 )
=18,696.06
7.50
i= =0.625 %
Compounding m Monthly 12 1+0.00625 ¿
240

n=12×20=240 4230 ¿

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MA 101 Business Math Page |5

1.00625 ¿240
4230 ¿
4230 ( 4.46081703 )
=18,869.26

Answer = 18,869.26

12. Calculate FV. Round to 2 decimal places


P
PV $5,000
V Calculate the FV for each different rate and different
Term t 1 year
compound period and determine which combination is
more profitable.

Rate j 5.4% 1+0.054 ¿1


5000 ¿
5.4
i= =5.4 % 1.0 54 ¿1
1
5000 ¿
Compounding m Annually
5000 (1.054 )
n=1×1=1
=5,270

Rate j 5.3% 1+0.0 265 ¿2


5.3 5000 ¿
i= =2. 65 %
2 1.0 265¿ 2
Semi-
Compounding m 5000 ¿
annually
n=2× 1=¿ 2 5000 (1.05370225 )
=5,268.51

Rate j 5.2% 1+0.0 13 ¿4


5000 ¿
5.2
i= =1.3 % 1.0 13¿
4
4
Compounding m Quarterly 5000 ¿
n=4 × 1=¿ 4
5000 (1 .05302282 )
=5,265.11

Rate j 5.1%

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MA 101 Business Math Page |6

1+0.0 0425 ¿12


5000 ¿
5.1
i= =0.4 25 % 1.0 0425 ¿
12
Compounding m Monthly 12
5000¿
n=12×1=¿ 12
5000 (1. 05220918 )
=5,261.05

Answer = 5,270

13. Calculate PV. Round to 2 decimal places


F
FV $10,000
V Calculate the PV for each compounding period and
Rate j 5.0% determine which compounding period is less profitable.
Term t 10 years
1+0.0 5 ¿−1
10 000 ¿
5.0
i= =5.0 % 1.0 5¿−1
Compounding m Annually 1
10 000 ¿
n=1×1 0=¿ 10
10 000 ( 0.952380952 )
=9,523.81
1+0.0 25 ¿−2
10000 ¿
5.0
Semi- i= =2.5 % 1.0 25 ¿
−2
Compounding m 2
annually 10000¿
n=2× 10=¿ 20
10000 ( 0.951814396 )
=9,518.14
−4
1+0.0 125 ¿
10000 ¿
5.0
i= =1.25 % 1.0 125 ¿−4
Compounding m Quarterly 4
10000 ¿
n=4 × 10=¿ 40
10000 ( 0.951524275 )
=9,515.24
−12
1+0.0 0416 ¿
10000 ¿
5.0
i= =0.416 % 1.0 0416 ¿−12
Compounding m Monthly 12
10000 ¿
n=12×1 0=¿ 120
10000 ( 0.951404035 )
=9,514.04

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MA 101 Business Math Page |7

Answer = 9,514.04

14. Calculate PV. Round to 2 decimal places


F
FV $40,000
V Calculate the PV for each different rate and different
Term t 12 year
compound period and determine which combination
require the lowest investment.

Rate j 5.5% 1+0.0 275 ¿−2


4 0000 ¿
5.5
i= =2.75 % 1.0 275¿
−2
Semi- 2
Compounding m 4 0000 ¿
annually n=2× 12=¿ 24
4 0000 ( 0.947188331)
=37,887.53

Rate j 5.0% 1+0.0 125 ¿−4


40000¿
1.0 125 ¿−4
5.0 40000 ¿
i= =1.25 %
4 40000 ( 0.9 51524275 )
Compounding m Quarterly
n=4 × 12=¿ 48 =38,060.97

Rate j 4.5% 1+0.0 0375 ¿−1 2


40000 ¿
4.5
i= =0.375 % 1.0 0375 ¿−1 2
12
Compounding m Monthly 40000 ¿
n=12×1 2=¿ 144
40000 ( 0.9 56077946 )
=38,243.12

Rate j 4.0% 1+0.0 4 ¿−1


40000 ¿
4 .0
i= =4.0 % 1.0 4 ¿−1
1
Compounding m Annually 40000 ¿
n=1×1 2=¿ 12
40000 ( 0.9 61538462 )
=38,461.54

Answer = 37,887.53

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