First City Bank computes interest semiannually.If the interest rate is currently 6 percent per annum,the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?
A) 20 periods at 12 percent
B) 20 periods at 3 percent
C) 10 periods at 6 percent
D) 10 periods at 3 percent

Question

Quizplus · Accepted Answer

Since interest is computed semiannually, there are 20 periods in 10 years (2 periods per year for 10 years).

The interest rate is 6% per annum, which means the semiannual interest rate is 3% (6% divided by 2).

To calculate the future value factor for 20 periods at 3%, we use the formula:

Future value factor = (1 + r)^n
where r is the interest rate per period and n is the number of periods.

Plugging in the values, we get: 
Future value factor = (1 + 0.03)^20 = 1.8061

Therefore, to calculate the amount that will accumulate by the end of 10 years, we need to multiply the amount deposited today by the future value factor of 1.8061.

First City Bank Computes Interest Semiannually