Unformatted text preview: ng the table for
i percent and n years, as we do when interest is compounded annually, we index
it for (i m) percent and (m n) periods. However, the table is less useful,
because it includes only selected rates for a limited number of periods. Instead, a
financial calculator or a computer and spreadsheet is typically required.
EXAMPLE Fred Moreno wished to find the future value of $100 invested at 8% interest
compounded both semiannually and quarterly for 2 years. The number of compounding periods, m, the interest rate, and the number of periods used in each
case, along with the future value interest factor, are as follows: Compounding
PV 4 N m Interest rate
(i ÷ m) Periods
(m n) Future value interest factor
from Table A–1 Semiannual 2 8% 2 4% 2 2 4 1.170 Quarterly 4 8% 4 2% 4 2 8 1.172 I 4 CPT
PV 8 N
I 2 CPT Table Use Multiplying each of the future value interest factors by the initial
$100 deposit results in a value of $117.00 (1.170 $100) for semiannual compounding and a value of $117.20 (1.172 $100) for quarterly compounding.
Calculator Use If the calculator were used for the semiannual compounding
calculation, the number of periods would...
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