You expect to receive $1,000 at the end of each of the next 3 years.You will deposit these payments into an account which pays 10 percent compounded semiannually.What is the future value of these payments,that is,the value at the end of the third year?
A) $3,000
B) $3,310
C) $3,318
D) $3,401
E) $3,438

Question

Quizplus · Accepted Answer

Since the payment is made twice a year, we need to divide the interest rate by 2, and the number of years by 2 as well.
Future value of first payment:
$1,000 * (1 + (0.1/2))^6 = $1,331.00
Future value of second payment:
$1,000 * (1 + (0.1/2))^4 = $1,464.10
Future value of third payment:
$1,000 * (1 + (0.1/2))^2 = $1,610.51
Total future value:
$1,331 + $1,464.10 + $1,610.51 = $3,405.61
Rounding down to the nearest cent gives us Choice C) $3,318

You Expect to Receive $1,000 at the End of Each