Your grandmother just gave you $6,000. You’d like to see what it might grow to if you invest it.
a. Calculate the future value of $6,000, given that it will be invested for five years at an annual interest rate of 6 percent.
b. Recalculate part (a) using a compounding period that is (1) semiannual and (2) bimonthly.
c. Now let’s look at what might happen if you can invest the money at a 12 percent rate rather than 6 percent rate; recalculate parts (a) and (b) for a 12 percent annual interest rate.
d. Now let’s see what might happen if you invest the money for 12 years rather than 5 years; recalculate part (a) using a time horizon of 12 years (annual interest rate is still 6 percent).
e. With respect to the changes in the stated interest rate and length of time the money is invested in parts (c) and (d), what conclusions can you draw?

  • CreatedOctober 31, 2014
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