Prepared by Charlie Cook The University of West Alabama © 2009 South-Western, a part of Cengage Learning Compound Interest: Assignments Chapter 16

16–2 © 2009 South-Western, a part of Cengage Learning

16–3 © 2009 South-Western, a part of Cengage Learning Simple interest is computed with the formula: I = P × R × T Compound interest—the computations of the simple interest formula are performed every period during the term of the investment. Period—the unit of time of the compounding. Effective rate—the true annual yield an investors earn when their money is compounded more than once per year. 1 T E R M S

16–4 © 2009 South-Western, a part of Cengage Learning 1 E X A M P L E

16–5 © 2009 South-Western, a part of Cengage Learning to Use the Future Value Table 1.Locate the factor in the proper row and column of Table Multiply the principal (present value) by the factor. The product is the future value. 3.Subtract the principal (present value) from the future value. The difference is the total amount of compound interest. 1

16–6 © 2009 South-Western, a part of Cengage Learning 1 E X A M P L E

16–7 © 2009 South-Western, a part of Cengage Learning to Determine the Periodic Rate and the Number of Compounding Periods 1.Determine m, the compounding periods in one year: m = 1, 2, 4, 12, 365. ( m = 1 for annual compounding; m = 2 for semiannual; m = 4 for quarterly; m = 12 for monthly; m = 365 for daily) 2.Determine i, the periodic interest rate as i = r ÷ m. (Divide the stated annual rate, r, by m.) i is the correct column. 3.Determine n, the total number of compounding periods: n = m × t. (Multiply the periods per year, m, by the number of years, t.) n is the correct row. 1

16–8 © 2009 South-Western, a part of Cengage Learning 1 E X A M P L E

16–9 © 2009 South-Western, a part of Cengage Learning X E X A M P L E

16–10 © 2009 South-Western, a part of Cengage Learning Daily Compounding X E X A M P L E

16–11 © 2009 South-Western, a part of Cengage Learning Future Value—what a sum of money invested today will be worth in the future. Future value = Present value × Future value factor FV = PV × FVF Present Value—how much money must be invested today to achieve a specific sum of money at a specific future date. Present value = Future value ÷ Future value factor PV = FV ÷ FVF 2,3 T E R M S

16–12 © 2009 South-Western, a part of Cengage Learning 3 E X A M P L E

16–13 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) A Find the future value (compound amount) and the compound interest, as indicated, for each of the following investments. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–14 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) A Find the future value (compound amount) and the compound interest, as indicated, for each of the following investments. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–15 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) B Find the future value (compound amount) or the compound interest, as indicated, for each of the following investments or loans. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–16 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) B Find the future value (compound amount) or the compound interest, as indicated, for each of the following investments or loans. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–17 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) C Business Applications. Find the future value (compound amount) or the compound interest, as indicated. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–18 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) C Business Applications. Find the future value (compound amount) or the compound interest, as indicated. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–19 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) C Business Applications. Find the future value (compound amount) or the compound interest, as indicated. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–20 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) C Business Applications. Find the future value (compound amount) or the compound interest, as indicated. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–21 © 2009 South-Western, a part of Cengage Learning Assignment 16.1: Future Value (Compound Amount) C Business Applications. Find the future value (compound amount) or the compound interest, as indicated. Round answers to the nearest cent. Use Table 16-1 or a calculator.

16–22 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value A Find the present value (principal) and the compound interest, as indicated, for each of the following investments. (Hint: Subtract the present value from the future value to find the compound interest.) Use Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–23 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value A Find the present value (principal) and the compound interest, as indicated, for each of the following investments. (Hint: Subtract the present value from the future value to find the compound interest.) Use Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–24 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value B Find the present value (principal) or the compound interest, as indicated, for each of the following investments or loans. Use Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–25 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value B Find the present value (principal) or the compound interest, as indicated, for each of the following investments or loans. Use Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–26 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value B Find the present value (principal) or the compound interest, as indicated, for each of the following investments or loans. Use Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–27 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value C Business Applications. Find the present value (principal) or the compound interest, as indicated. Use either Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–28 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value C Business Applications. Find the present value (principal) or the compound interest, as indicated. Use either Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–29 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value C Business Applications. Find the present value (principal) or the compound interest, as indicated. Use either Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–30 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value C Business Applications. Find the present value (principal) or the compound interest, as indicated. Use either Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–31 © 2009 South-Western, a part of Cengage Learning Assignment 16.2: Present Value C Business Applications. Find the present value (principal) or the compound interest, as indicated. Use either Table 16-1,Table 16-2, or a calculator. Round answers to the nearest cent.

16–32 © 2009 South-Western, a part of Cengage Learning Chapter Terms for Review compound amount compound amount factors compound interest exponent future value future value factor number of compounding periods period (compounding period) periodic interest rate power present value present value factor