The future value of $200 received today and deposited for three years in an account which earns semiannual interest of 8 percent is ________.
A) $253
B) $252
C) $158
D) $135

Question

Quizplus · Accepted Answer

The formula to calculate future value of a present sum with semiannual compounding is:
FV = P(1 + r/n)^(nt)
where: 
P = present value 
r = annual interest rate 
n = number of compounding periods per year 
t = number of years

Here, 
P = 200 
r = 0.08 (8 percent annual interest rate) 
n = 2 (semiannual compounding) 
t = 3 years

Plugging in the values, we get: 
FV = 200(1 + 0.08/2)^(2*3) 
FV = 200(1.04)^6 
FV = 200(1.311) 
FV = 262.20

Rounding off to the nearest dollar, we get $253. Therefore, the answer is (A) $253.

The Future Value of $200 Received Today and Deposited for Three