Exam 19: Compound Interest and Present Value

Multiplying by means that if $.75 is invested at a certain rate of interest for a certain number of periods, it would be worth $1 in the past.

Merle Fonda opened a new savings account. She deposited $40,000 at 10% compounded semiannually. At the start of the fourth year, Merle deposits an additional $20,000 that is also compounded semiannually at 10%. At the end of six years, the balance in Merle's account is

Jim Smith believes that in 30 years he will need $80,000 to buy a retirement cottage. Assuming he gets an interest rate of 9% compounded annually, how much will he have to invest today to reach his retirement goal?

Burton Bush wants to retire in Arizona when he is 80 years of age. Burton, who is now 55, believes he will need $400,000 to retire comfortably. To date, he has set aside no retirement money. If he gets an interest rate of 6% compounded annually, he will have to invest today (to the nearest dollar)

Joe Diamond deposited $9,000 into the Rong Bank, which pays 12% interest, compounded quarterly. Calculate the amount Joe will have in his account at the end of four years.

The present value of $12,000 for six years compounded at 6% semiannually is:

Effective rates can be seen in the compounding table for one dollar.

The rate to be used in compounding is found by taking the annual rate divided by the number of times compounded per day.

Jane is having difficulty deciding whether to put her savings in the Mystic Bank or in the Four Rivers Bank. Mystic offers a 12% rate compounded quarterly, and Four Rivers offers 14% compounded semiannually. Jane has $40,000 to invest and expects to withdraw the money at the end of five years. The best deal is:

Molly Scupper wants to attend Clarke University. She will need $90,000 eight years from today. Assume Molly's bank pays 6% interest compounded quarterly. What must Molly deposit today to have $90,000 in eight years? Verify your answer.

Interest = principal * rate divided by the time.

The annual rate a bank advertises is the same as the effective rate.

$6,000 for six years at 8½% compounded daily will grow to:

Annual means compounded once a year.

Compounding looks into the present when we know what we have in the future.

The value of $60 deposited in a bank for six years at a rate of 10% compounded annually is:

The I/Y key on a financial calculator is used to input the periodic interest rate.

In the compound interest formula, i stands for periodic interest rate.

Pete Sist wants to buy a new Chevrolet in five years. He estimates the car will cost $24,000. Assuming Pete invests $15,000 now at 10% interest compounded semiannually, will he have enough money to buy the car at the end of five years?

Using daily compounding, $700 would grow to $790 at the end of three years at 8% interest.