Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 8EA: You put $250 in the bank for S years at 12%. A. If interest is added at the end of the year, how...
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Question
If your bank pays you 1.5% interest and you deposit $700 today, what will be your balance in seven
years?
years?
The bank balance will be $ ______.
(Round to the nearest cent.)
(Round to the nearest cent.)
Expert Solution
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Step 1
Time value of money (TVM) means that the amount of money received in the present times will have more than the money received in the future times. It is based on the concept that the earlier receipts are worth more than the later receipts. The process of finding the future value based on the present value, interest rate and the compounding period is called the compounding.
It is calculated as follows:
Where,
FV = Future value
PV = Present value
r = Interest rate
n = Number of compounding period
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