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Question 273688: Find the future value on a savings account with a principle of $4700 at 4% simple interest for time period of 4 years.
Find the future value on a savings account at the end of 6 years if the initial balance is $4400 and the accounts earns 3% interest compounded semiannually.
Steve has a loan out for $15600. The interest rate on his loan is 4% compounded quarterly. Find the annual percent yield for Steves loan.
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! First problem:
Future Value of the account 4 years from now would be:
4700 + (.04*4700) * 4 = 5452
This is simple interest (no compounding).
you take the interest for 1 year and multiply that by 4 to get the total interest and then you add it to the principal.
Second problem:
Future Value of the account 6 years from now would be:
4400 * (1.015)^12 = 5260.719954
3% interest per year compounded semi-annually is equal to 1.5% interest per semi-annual time period.
The number of time periods are the number of years times the number of compounding periods per year.
6 * 2 = 12 time periods.
your interest per time period is 3% / 2 equals 1.5% divided by 100% equals .015.
your number of time periods is number of years * number of time periods per year equals 6 * 2 = 12.
That's why the formula is as shown.
problem number 3:
loan is for 154600
interest rate is 4% compounded quarterly.
find the annual percent yield for steve's loan.
I think this is what they are talking about:
http://www.investopedia.com/articles/basics/04/102904.asp
4% per year compounded quarterly yields an effective rate calculated as follows:
4% / 4 = 1% per quarter.
There are 4 quarters to the year.
1.01^4 = 1.04060401
The annual percentage rate is 4%.
The annual percentage yield is 4.060401%.
you take ten thousand dollars for 1 year at 4% per year and you have 10,400 at the end of the year.
you take ten thousand dollars for 1 year at 1% compounded quarterly and you have 10,406 at the end of the year.
not a big difference with 4% but there is a difference.
with steve, the loan is 15,600
at the annual percent rate, the interest figures out to be 624.
at the effective yield rate, the interest figures out to be 633.422556
not sure if I answered the last question correctly.
let me know if you need more.
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