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Future value of the loan

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Reference no: EM131963981

Find the future value of a $12,000 Certificate of Deposit that pays compounded interest every three months at the rate of 8% per year. The CD has a term of 4 years.

a) Calculate the FV (Future Value) using the "Future Value or Compound Amount of $1.00" table in your textbook.

Reminder: To use Table 13-1, you need to calculate the Number of Periods and the Interest Rate per Period.

Number of periods= 16

Interest rate period= 8/4= 2% or .02

Corresponding value= 1.37279

Multiply the principal 1.37279 * 12,000 = 16,473.48

Future Value of the loan is $16,473.48

b) Calculate the FV (Future Value) using the formula: FV = P(1 + R)N

Reminder: Always show work. State the values that you are substituting into the formula.

Principal = 12,000

Rate = 8/4 = 2%

Number of Periods = 4 quarters/year * 4 years =16

12,000 (1 + .002) ^16 = 12,389.8141

FV = 12,389.81

c) How much interest was earned on the investment?

Use either the result from Part 2a or Part 2b, since they are slightly different for your calculation.

12,389.81 - 12,000.00 = $389.81 interest earned on investment

Reference no: EM131963981

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