An investment account offers a 12% annual return. If $50,000 is placed in the account for two years, by how much will the investment grow if interest is compounded (a) annually, (b) semiannually, (c) quarterly, or (d)

An investment account offers a 12% annual return. If $50,000 is placed in the account for two years, by how much will the investment grow if interest is compounded (a) annually, (b) semiannually, (c) quarterly, or (d)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

An investment account offers a 12%
annual return. If $50,000 is placed in the
account for two years, by how much will
the investment grow if interest is
compounded (a) annually, (b)
semiannually, (c) quarterly, or (d)
monthly? (FV of $1, PV of $1, FVA of $1,
and PVA of $1) (Use tables, Excel, or a
financial calculator. Round your answers
to 2 decimal places.)

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Step 2: a) Annually

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Step 3: Compounded Semiannually

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Step 4: Quarterly

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