Solve the Problem

question 38

Multiple Choice

Solve the problem.
-An investment of $13,335 earns 12% interest compounded monthly for 2 years. (a) What is the future value of the investment? (Use the compound interest table.) (b) If money can be deposited at 6% compounded quarterly, find the present value of the investment.

• A)(a)$17,931.85 (b)$10,748.77
• B)(a)$16,931.85 (b)$15,030.57
• C)(a)$14,439.89 (b)$9,462.76
• D)(a)$16,764.27 (b)$9,748.77

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Definitions:

Compound Interest

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Future Value

An estimated future value of a present asset, projected by applying an anticipated growth rate over time.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Compounded Quarterly

A method of calculating interest where the interest is added to the principal amount every quarter, leading to interest being earned on interest.