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Chapter 6: Q2E (page 303)

Alan Jackson invests $20,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan withdraws the accumulated amount of money. Instructions (a) Compute the amount Alan would withdraw assuming the investment earns simple interest. (b) Compute the amount Alan would withdraw assuming the investment earns interest compounded annually. (c) Compute the amount Alan would withdraw assuming the investment earns interest compounded semiannually

Short Answer

Expert verified

The amount at the withdrawal using simple interest will be $32,800, Compounded annually will be $37,018, and compounded semi-annually will be $37,459.

Step by step solution

01

Simple Interest

Amountatwithdrawal=Amount+SimpleInterestRate=20,000+20,000脳8%脳8=$32,800

02

Compounded Annually

Amountatwithdrawal=Amount脳Futurevaluefactor=20,000脳1.85093=$37,018

03

Compounded Semi-annually

Amountatwithdrawal=Amount脳Futurevaluefactor=20,000脳1.87298=$37,459

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Most popular questions from this chapter

Craig Brokaw, newly appointed controller of STL, is considering ways to reduce his company鈥檚 expenditures on annual pension costs. One way to do this is to switch STL鈥檚 pension fund assets from First Security to NET Life. STL is a very well-respected computer manufacturer that recently has experienced a sharp decline in its financial performance for the first time in its 25-year history. Despite financial problems, STL still is committed to providing its employees with good pension and postretirement health benefits.

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Instructions

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