Question

You deposited​ ($1,000) in a savings account that pays 8 percent​ interest, compounded​ quarterly, planning to use it to finish your last year in college. Eighteen months​ later, you decide to go to the Roshy Mountains to become a ski instructor rather than continue in​ school, so you close out your account. How much money will you​ receive? (Round to the nearest whole​ dollar

Answer 1

Answer:

Present value (PV) = $1,000

Interest rate (r) =8% = 0.08

Number of years (n) = 18 months = 1.5 years

No of compounding periods in a year = 4

Future value (FV) = ?

FV = PV(1 + r/m)nm

FV = $1,000(1 + 0.08/4)1.5x4

FV = $1,000(1 + 0.02)6

FV = $1,000 x 1.1262

FV = $1,126

Explanation:

The amount to be received in 18 months is $1,126. This is obtained by compounding the present value at 8% compounded quarterly for 18 months. The formula to be applied is the formula for future value of a lump sum(single investment).