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Interest Calculation Problems: Compounding Rates & Future Values

Solve financial problems involving compounding rates & future values. Calculate future values for investments over years. Compare borrowing options from finance company & bank based on interest rates.

stephanie-hull
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Interest Calculation Problems: Compounding Rates & Future Values

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  1. Study Problem 5-1-c • FV of $775 if invested for 12 years at 12% compounded annually? • FVn = PV(1 +i)n or • FV12 = 775(1 + .12)12 = $3,019.40 or • 775 +/- PV; 12 I/Y; 12 N; 0 PMT • CPT FV = 3,019.40

  2. Study Problem 5-3-a • At what rate would $500 have to be invested to grow to $1,948 in 12 years if interest is compounded annually? • 500 +/- PV; 1,948 FV; 0 PMT; 12 N; • CPT I/Y = 12 %.

  3. Study Problem 5-18 • Borrow from a finance company at 12% compounded monthly or from a bank at 13% compounded annually. Which is the better deal? • Solution: compare the future value of a common set of cash flows, say $100. • 12% monthly -100+/- PV; 12/12 = 1 I/Y; 12 N; 0 PMT; CPT FV = 112.70 • 13% annually – 100 +/- PV; 13 I/Y; 1 N; CPT FV = 113.00

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