Question

For a given single sum invested at 8% for four years, how will the future value be affected if the compounding period is changed from quarterly to annually?

Answer 1

Answer:

Future Value will increase

Explanation:

Future Value = Present Value (PV)*(1 + i)^n

Let Amount  be $10,000

Interest = 12% compounded annually

Period = 4

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

Future Value = $15,735.19

Let Amount  be $10,000

Interest = 12% compounded quarterly

Period = 4 (4*4)

Future Value = $10,000*(1 + 3%)^16

Future Value = $16,047.06

Conclusion: The future value will increase.