The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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Kingston inherited $140,000 from an aunt.If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years,how much money will he have assuming an annual interest rate of 8%,compounded semiannually?
A)$308,000
B)$509,880
C)$454,020
D)$7,851,900

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.  
-
Kingston inherited $140,000 from an aunt.If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years,how much money will he have assuming an annual interest rate of 8%,compounded semiannually?
A)$308,000
B)$509,880
C)$454,020
D)$7,851,900

Quizplus · Accepted Answer

To solve this problem, we need to use the formula for future value of a lump sum:
FV = PV x (1 + r/n)^(n*t)
where:
PV = present value (inheritance) = $140,000
r = annual interest rate = 8%
n = number of times interest is compounded per year = 2 (semiannually)
t = number of years the money is invested = 15

Plugging in the values, we get:
FV = $140,000 x (1 + 0.08/2)^(2*15)
FV = $454,020

Therefore, Kingston will have $454,020 in his savings account if he leaves his inheritance untouched for 15 years at an annual interest rate of 8%, compounded semiannually. The correct answer is C.

The Solution to This Problem Requires Time Value of Money