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. The future value of equal semi-annual payments of $500 at 8% compounded semiannually for 4 years is
A) $ 868
B) $9,320
C) $2,000
D) $4,607

Question

Quizplus · Accepted Answer

The future value of an annuity formula is used here. With semi-annual compounding, the interest rate is 4% per period (8% annually), and there are 8 periods (4 years x 2). Using the future value of an annuity table or formula, the future value factor for 8 periods at 4% is approximately 9.385. Multiplying this factor by the payment amount ($500) gives approximately $4,692, closest to option D.

The Solution to This Problem Requires Time Value of Money