FV in 10 years = $4,500[1 + (.093/365)] 10(365) = $11,403.94 FV in 20 years = $4,500[1 + (.093/365)] 20(365) = $28,899.97 18. For this problem, we simply need to find the PV of a lump sum using the equation: PV = FV / (1 + r) t It is important to note that compounding occurs daily. To account for this, we will divide the interest rate by 365 (the number of days in a year, ignoring leap year), and multiply the number of periods by 365. Doing so, we get: PV = $58,000 / [(1 + .10/365) 7(365) ] = $28,804.71 19. The APR is simply the interest rate per period times the number of periods in a year. In this case, the interest rate is 30 percent per month, and there are 12 months in a year, so we get: APR = 12(30%) = 360% To find the EAR, we use the EAR formula: EAR = [1 + (APR / m )] m – 1 EAR = (1 + .30) 12 – 1 = 2,229.81% Notice that we didn’t need to divide the APR by the number of compounding periods per year. We do this division to
This is the end of the preview. Sign up
access the rest of the document.