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

Question

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 semiannual payments of $500 at 8% compounded semiannually for four years is
A)$868.
B)$2,000.
C)$4,607.
D)$9,320.

Quizplus · Accepted Answer

We can use the formula for future value of an annuity due to find the answer:

FV = (PMT x ((1 + r)^n - 1) / r) x (1 + r)

Where:
PMT = payment per period = $500
r = interest rate per period = 8%/2 = 4%
n = number of periods = 4 x 2 = 8

Plugging in the values, we get:

FV = (500 x ((1 + 0.04)^8 - 1) / 0.04) x (1 + 0.04)
   = $4,607.07

Therefore, the best choice is C, with a future value of $4,607.

The Solution to This Problem Requires Time Value of Money