Multiple compounding periods (FV): Normandy Textiles had a cash inflow of $1 million, which it needs for a long-term investment at the end of one year. It plans to invest this money in a bank term deposit that pays daily interest at 3.75 percent. What will be the value of the investment at the end of the year? (Round to the nearest dollar.)
A) $1,211,375
B) $1,000,103
C) $1,037,500
D) $1,038,210

Question

Quizplus · Accepted Answer

The formula for calculating the future value (FV) of a lump sum with multiple compounding periods is:

FV = P(1 + r/n)^(n*t)

Where:
P = Principal amount
r = Annual interest rate
n = Number of compounding periods per year
t = Number of years

In this case, P = $1,000,000, r = 3.75%, n = 365 (since interest is paid daily), and t = 1.

Plugging in these values, we get:

FV = $1,000,000(1 + 0.0375/365)^(365*1)
FV = $1,038,210.47

Rounding to the nearest dollar, the value of the investment at the end of the year is $1,038,210, which is closest to answer option D.

Multiple Compounding Periods (FV): Normandy Textiles Had a Cash Inflow