What is the future value of $1,000 in five years at 8% interest paid semi annually ? Paid quarterly? How much would you have to deposit today to have $1,000 in 8 years at 6% paid annually? Quarterly? How do you use the tables to calculate this vs calculate .
Future value is an amount reccievable in future(after certain period) by investing today.
Formula for future value = Investment*(1+i)n
Where investment is you deposit today
i= rate of return/interest
n = number of compounding
Case 1. Where interest rate is paid semi annually. In this case, number of year get multiply by 2 and interest rate will divide by 2. Since interest rate is payble 2(two) time in a year.So compounding frequency will increse
Investment =$1000
Rate of interest(i) =8%/2 =4% or 0.04
Number of compounding(n) =5*2 =10
Future value =1000(1+0.04)10
=1000(1.04)10
=1000*1.48024
=1480.24
Hence where interest is payble semi annually, you will reccieve $1480.24 in future by investing $1000 today
Case 2 Where interest rate is paid quaterly. In this case the number of year get multiply by 4 and the rate of interest will divide by 4. Since interet rate is payble 4times in a year. So compounding frequency will increse
Investment =1000
Rate of interet = 8%/4 =2% or 0.02
Number of compounding(n) =5*4 =20
Future value =1000(1+.02)20
=1000(1.02)20
=1000*1.48595
=1485.95
Hence where interest is payble quaterly, you will reccieve $1485.95 in future by investing $1000 today
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