Concept explainers
(a)
Calculate the accumulated amount withdrawn by J, if the investment earns simple interest.
(a)
Answer to Problem A.1BE
The accumulated amount withdrawn by J is $9,600.
Explanation of Solution
Future value: This is the amount of present value accumulated or compounded at a rate of interest till a particular future date.
Formula to compute future value at simple interest:
Determine the accumulated amount withdrawn by J.
The justification for the above calculation is as follows:
J invested $6,000 at 5% interest rate for 12 years. He withdrew the accumulated amount of money after 12 years. In that, he earned the interest amount of $3,600 from the investment (using simple interest method). Therefore, the accumulated amount withdraw by J is $9,600.
Therefore, the accumulated amount withdrawn by J is $9,600.
(b)
Calculate the future value of a single amount, if the interest is compounded annually.
(b)
Answer to Problem A.1BE
Therefore, the future value of an amount is $10.775.16.
Explanation of Solution
Future value: This is the amount of present value accumulated or compounded at a rate of interest till a particular future date.
Formula to compute future value at compounded interest:
Or,
Determine the accumulated amount withdrawn by J.
Note: Refer to Table 1 of Appendix A for future value factor.
J invested $6,000 at 5% interest rate for 12 years. If the interest amount is compounded annually, the future value factor of 5% for 12 time periods would be 1.79586. Therefore, the amount withdrawn by J is $10.775.16.
Therefore, the future value of an amount is $10.775.16.
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Chapter A Solutions
Managerial Accounting: Tools for Business Decision Making
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