You buy a six-year, 8 percent savings certificate for $10,000

Finance Jun 02, 2021

You buy a six-year, 8 percent savings certificate for $10,000. If the interest is compounded semiannually, what will be its value at maturity? Explain the effect that causes the ending balance to either increase or decrease

Expert Solution

Computation of the future value:-

FV = PV*(1+rate)^n

Here,

Rate = 8%/2 = 4% (semiannual)

n = 6*2 = 12 periods (semiannual)

FV = $10,000*(1+4%)^12

= $10,000*1.6010

= $16,010.32

The interest is added with the savings so, the ending balance will be increased and time value of money is the reason for the increase.

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