Question: Suppose I invest a lump amount of $6302.00 with a promised nominal rate

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Question:

Suppose I invest a lump amount of $6302.00 with a promised nominal rate of 3.57% per year. If interest compounds quarterly what is the expected future value in 5 years?

Answer:

Present value of investment = $6,302

Annual Promised return = 3.57%

Number of quarter in a year = 4

Future value after 5 year = $6,302 × (1 + 3.57% / 4) ^ (5 × 4)

= $6,302 × (1.008925 ^ 20)

= $6,302 × 1.1945

= $7,527.59.

Future value after five year will be $7,527.59.

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