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

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Business

Carmelo Ford

2 May, 17:12

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

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Aldo Butler · Answer 1

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).