Financial Math (Determine compound period)?
Future value of a $200 deposit in an account that earns 6.25% annual interest is $272.71 after 5 years. Determine the compounding period for this investment.
My work:
PV=FV(1+I/n)^ (-n)
200=272.71(1+0.0625/n)^-5n
log0.73=log(1+0.0625/n)-5n
This is where I got stuck. No idea how to continue
The answer is that it is compounded quarterly.
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Answers & Comments
Verified answer
Hi Johnny,
Try using Excel, if you are allowed to use in exam.
Formula for FV is PV(1+r/n)^(5n)
So you can see, compounding period = 4 is right answer. Hope this helps.
PV Rate Years Comp Prds FV Given FV
200 0.0625 5 n PV(1+r/n)^(5n) 272.71
200 0.0625 5 2 272.0630806 272.71
200 0.0625 5 3 272.4912966 272.71
200 0.0625 5 4 272.7078559 272.71