
(a)
Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The following formula is used to calculate the future value of an amount:
Future value of an amount = Present value×(1+ Interest rate)Number of periods
To determine: the amount withdrawn by J assuming investment earning simple interest.
(a)

Answer to Problem AD.1BE
Calculate the amount of simple interest as follows:
Simple interest =( Principal amount×Interest rate× Number of periods)=($8,000×5%×12 years)=$4,800
Calculate the accumulated amount as follows:
Accumulated amount = (Invested amount + Interest amount)=($8,000+$4,800)=$12,800
Explanation of Solution
J invested $8,000 at 5% interest rate for 12 years. He withdrew the accumulated amount of money after 12 years. In that, he earned the interest amount of $4,800 from the investment (using simple interest method). Therefore, the accumulated amount withdraw by J is $12,800.
Therefore, the accumulated amount withdrawn by J (if interest earns simple interest) is $12,800.
(b)
To Calculate: The future value of a single amount (if the interest compounded annually).
(b)

Answer to Problem AD.1BE
Future value of an amount=( Invested amount × Future value of 12thyear at 5%interest (future value factor))=$8,000×1.79586=$14,366.88
Explanation of Solution
J invested $8,000 at 5% interest rate for 12 years. If the interest amount compounded annually then the future value of a 12th year at 5% interest would be 1.79586 (Refer table 1 for the future value of money). Therefore, the amount earn by J is $14,366.88.
Therefore, the accumulated amount withdrawn by J (if the interest compounded annually)is $14,366.88.
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Chapter AD Solutions
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