Quiz 11: Compound Interest and Present Value

Business

Given, The principal amount is $14,000, Time period (years) is 6, Nominal rate (%) is 14 and Interest compounded semiannually. To calculate compound interest, first find the interest rate per period and the number of compounding periods. Interest rate per period img img Compounding periods = years × Periods per year img Now find the table factor by scanning across the top row of the compound interest table to 7% and down the 7% column to 12 periods. The table factor at that intersection is 2.25219 The compound amount can be found by multiplying the table factor with the principal. Compound amount = Table factor × Principal img The amount of interest is found by subtracting the principal form the compound amount Compound interest = Compound amount - principal img Therefore the compound amount for 6 years with nominal rate 14% is $31,530.66 and interest is $17,530.66.

Interest Calculated solely on the principal is known as simple interest, where as interest calculated on the principal and previously earned interest is known as compound interest. Because simple interest is the interest which can be calculated on the principal The compound interest is the interest calculated on the principal and previously earned interest.

Given, The principal amount is $7,700, Time period (years) is 5, Nominal rate (%) is 6 and Interest compounded quarterly. To calculate compound interest, first find the interest rate per period and the number of compounding periods. Interest rate per period img img Compounding periods = years × Periods per year img Now find the table factor by scanning across the top row of the compound interest table to img and down the img column to 20 periods. The table factor at that intersection is 1.34686 The compound amount can be found by multiplying the table factor with the principal. Compound amount = Table factor × Principal img The amount of interest is found by subtracting the principal form the compound amount Compound interest = Compound amount - principal img The compound amount and interest for a period of 5 years and at a rate of 6% are $10,370.822 and $2,670.822 respectively.

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