In some cases, interest compounds over a non-annual frequency. To perform our TVM money calculations, you need
Question:
In some cases, interest compounds over a non-annual frequency. To perform our TVM money calculations, you need to make two adjustments:
(1) Convert the annual rate to a "periodic" rate by dividing the annual rate by the number of compounding periods per year. For example, if you have monthly compounding, divide the annual rate by 12.
(2) Calculate the total number of periods by multiplying the number of years by the number of compounding periods per year. So, if you have monthly compounding over four years, there are 12 x 4 = 48 total periods in the problem.
After you've made these adjustments you can now work the problem using the periodic interest rate and total number of periods in your calculations.
You deposit $9,000 today in an account that pays 2.5% interest per year with daily compounding. How much will you have in the account 17 years from today? Assume a 365-day year. Round your answer to the nearest penny.
Personal Finance Turning Money into Wealth
ISBN: 978-0134730363
8th edition
Authors: Arthur J. Keown