08 4 42 100 1 0028 11716 these results agree with

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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 period Input 100 Function 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 FV Solution 116.99 Input 100 Function 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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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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