Determine the accumulated amounts withdraw by J. Calculate the future value of a single amount (if the interest compounded annually).
Explanation of Solution
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:
Step 1: Calculate the amount of simple interest.
Step 2: Calculate the accumulated amount.
Therefore, the accumulated amount withdraw by J is $9,600.
J invested $6,000 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 $3,600 from the investment (using simple interest method). Therefore, the accumulated amount withdraw by J is $9,600.
The future value of the amount is determined as follows:
J invested $6,000 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 $10.775.16. Therefore, the future value of an amount is $10.775.16.
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