You just received a $5,000 bonus. a. Calculate the future value of $5,000, given that it will

Question:

You just received a $5,000 bonus.

a. Calculate the future value of $5,000, given that it will be held in the bank for five years and earn an annual interest rate of 6 percent.

b. Recalculate part (a) using a compounding period that is (1) semiannual and (2) bimonthly.

c. Recalculate parts (a) and (b) using a 12 percent annual interest rate.

d. Recalculate part (a) using a time horizon of 12 years at a 6 percent interest rate.

e. What conclusions can you draw when you compare the answers in parts (c) and (d) with the answers in parts (a) and (b)?

Compounding
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will... Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...