In order to find the future worth, F, from a present amount, P, 5 years from now at an interest rate of 12% per year, compounded quarterly, what interest rate must be used in the F?P factor, (F?P,i%,n), when n is (a) 5, (b) 10, and (c) 20?
What will be an ideal response?
(a) Since n is in years, need effective i/year
i/year = (1 + 0.12/4)4 - 1
= 12.551%
(b) Since n is semiannual periods, need effective i/6-mths
i/6-mths = (1 + 0.06/2)2 – 1
= 6.09%
(c) Since n is quarters, need i/quarter
i/quarter = 0.12/4
= 3%
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