Semiannual compounding semiannual compounding

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Unformatted text preview: MPLE Fred Moreno has decided to invest $100 in a savings account paying 8% interest compounded semiannually. If he leaves his money in the account for 24 months (2 years), he will be paid 4% interest compounded over four periods, each of 154 PART 2 Important Financial Concepts TABLE 4.5 Period The Future Value from Investing $100 at 8% Interest Compounded Semiannually Over 24 Months (2 Years) Beginning principal (1) Future value interest factor (2) Future value at end of period [(1) (2)] (3) 6 months $100.00 1.04 $104.00 12 months 104.00 1.04 108.16 18 months 108.16 1.04 112.49 24 months 112.49 1.04 116.99 which is 6 months long. Table 4.5 uses interest factors to show that at the end of 12 months (1 year) with 8% semiannual compounding, Fred will have $108.16; at the end of 24 months (2 years), he will have $116.99. Quarterly Compounding quarterly compounding Compounding of interest over four periods within the year. Quarterly compounding of interest involves four compounding periods within the year. One-fourth of the stated interest rate is paid four times a year. EXAMPLE Fred Moreno has fo...
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