Chapter 9

Compound Interest - Future Value and Present Value

Contemporary Business Math w/ Canadian Apps., 11e (Hummelbrunner/Coombs)

1) Determine the accumulated value of $4100.00 compounded semi-annually at 8% p.a. for seven
years.

Answer: PV = 4100.00; i = 4%; n = 14

FV = 4100(1 + .04)14 = 4100(1.7316764) = $7099.87

2) Calculate the accumulated value of $3000.00 at 8% compounded quarterly for fifteen years. How
much of the amount is interest?

Answer: PV = 3000; i = = 2% = 0.02 ; n = 15(4) = 60; I/Y = 8; P/Y = C/Y = 4

FV = 3000 = 9843.09
Interest = 9843.09 - 3000.00 = $6843.09

3) How much will a registered retirement savings deposit of $13 500.00 be worth in 11 years at
8.44% compounded quarterly? How much of the amount is interest?

Answer: PV = 13500.00; i = 8.44%/4 = 2.11%; n = 11*4 = 44

FV = 13500(1 + .0211)44 = 13500(2.5061332) = 33 832.80
I = 33832.80 - 13500.00 = 20 332.80

4) An investment of $21 700 is accumulated at 5.24% compounded quarterly for three and one-half
years. At that time the interest rate is changed to 6.12% compounded monthly. How much is the
investment worth two years after the change in interest rate?

Answer: Balance after 3.5 years

= 21700.00(1.0131)14 = 21700.00(1.1998651) = $26 037.07
Balance 2 years later
= 26037.07(1.0051)24 = 26037.07(1.1298546) = $29 418.10

5) Two years after Sean deposited $5000 in a savings account that earned interest at 6%
compounded monthly, the rate of interest was changed to 6.4% compounded semi-annually.
How much was in the account fifteen years after the deposit was made?

Answer: Balance after 2 years

FV = 5000.00(1.005)24 = 5000.00(1.127159776) = 5635.80
Balance after a total of 15 years
FV = 5635.80(1.032)26 = 5635.80(2.268151865) = $12 782.85
6) An investment of $2500.00 accumulates interest at 9.25% compounded quarterly. After 18
months the rate changed to 9.75% compounded semi-annually. Calculate the accumulated value
three years after the initial investment.

Answer: Step 1
PV = 2500.00; i = = 2.3125% = 0.023125; n = (4) = 6; I/Y = 9.25

FV = 2500 = 2867.56
Step 2
PV = 2867.56; i = = 4.875% = 0.04875; n = (2) = 3; I/Y = 9.75

FV = 2867.56 = 3307.72

7) An investment of $4300.00 earns interest at 9.96% p.a. compounded monthly for four years. At
that time the interest rate is changed to 9% compounded semi-annually. How much will the
accumulated value be two and a half years after the change?

Answer: Balance after 4 years:

PV = 4300.00; m = 12; i = = .0083; n = 4 * 12 = 48

FV = 4300.00(1 + .0083)48 = 4300.00(1.4869927) = 6394.07

Balance 2.5 years later:
PV = 6394.07; m = 2; i = = .045; n = 2.5 * 2 = 5

FV = 6394.07(1 + .045)5 = 6394.07(1.2461819) = 7968.17

The accumulated value 2.5 years after the change is $7968.17.

8) What is the present value of $7800.00 payable in six years if the current interest rate is 7.6% p.a.,
compounded quarterly?

Answer: FV = 7800.00; i = 1.9%; n = 24

PV = 7800.00(1 + .019)-24 = 7800.00(.636531) = 4964.94

9) Find the present value and the compound discount of $6100.00 due in 7.5 years if interest is
8.26% compounded semi-annually.

Answer: PV = 6100.00(1.0413)-15 = 6100.00(.5449567) = $3324.24

Discount = 6100.00 - 3324.24 = $2775.76

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10) Find the present value and the compound discount of $6 600.00 due in seven years, three
months, if interest is 7.2% compounded quarterly.

Answer: FV = 6600.00; m = 4; i = = 1.8% = 0.018; n = 7.25 * 4 = 29

PV = 6600.00(1.018)-29 = 6600.00(.5960936) = $3934.22

11) What sum of money invested at 8% p.a., compounded quarterly, will grow to $10 000.00 in 12.5
years?

Answer: FV = 10000.00; i = 2%; n = 50

PV = 10000.00(1.02)-50 = 10000.00(.3715278821) = 3715.28

12) Find the principal which will grow to $7258.00 at 6.58% compounded semi-annually in four
years and five months.

Answer: n = (4 + )2 = = 8.8

PV = 7258.00(1.0329)-8.83 = 7258.00(.7513089) = $5453.00