Question

6. Using Table 11-2 from your text, calculate the present value (principal) and the compound interest given: Compound Amount = $1,250 Term of Investment = 6 years Nominal rate = 6% Interest is compounded semiannually

Answer 1

Answer:

The Principal is $877.19    And  Compound Interest is $372.81  

Step-by-step explanation:

Given as :

Amount after investment = $1250

The time period of investment = 6 years

The nominal rate = 6% compounded semiannually

Let the principal = P

From compounded method

Amount = Principal × $(1 + \frac{Rate}{2\times 100})^{2\times Time}$

Or, $1250 = P × $(1 + \frac{6}{2\times 100})^{2\times 6}$

Or, $1250 = P × $(1.03)^{12}$

Or, $1250 = P × 1.425

∴   P = $\frac{1250}{1.425}$

I.e P = $877.19  

So , Principal = $877.19

Now, Compound Interest = Amount - Principal

                                          = $1250 - $877.19

Or,                                CI  = $372.81

Hence The Principal is $877.19    And  Compound Interest is $372.81  Answer