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Identify the interest rate column and the number of period’s row that will be used for the following rates.
Explanation of Solution
Future value:
The future value is value of present amount compounded at an interest rate until a particular future date
1.
When annual rate is 8% and compounded quarterly. The interest rate column will be 2% and the number of periods will be 8 because, when future value is compounded quarterly, the number of years will be increased by four times and the rate of interest will decrease by quarter of the given interest rate.
2.
When annual rate is 12% and compounded annually. The interest rate column will be 12% and the number of periods will be 8.
3.
When annual rate is 6% and compounded semiannually. The interest rate column will be 3% and the number of periods will be 4 because when future value is compounded semiannually, the number of years will be doubled and the rate of interest will decrease by half of the given interest rate.
4.
When annual rate is 12% and compounded monthly. The interest rate column will be 1% and the number of periods will be 24, because the interest rate for each month will be 1% and number of period will be 24 because future value is estimated for 2 years.
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