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Homework answers / question archive / You buy a six-year, 8 percent savings certificate for $10,000

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

Finance

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

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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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