Question

6. Using Table 11-2 from your text, calculate the present value (principal) and the compound interest given: Compound Amount = $1,250 Term of Investment = 6 years Nominal rate = 6% Interest is compounded semiannually

Answer 1

The Principal is $877.19 And Compound Interest is $372.81

Explanation:

Given as :

Amount after investment = $1250

The time period of investment = 6 years

The nominal rate = 6% compounded semiannually

Let the principal = P

From compounded method

Amount = Principal ×
`(1 + (Rate)/(2* 100))^(2* Time)`

Or, $1250 = P ×
`(1 + (6)/(2* 100))^(2* 6)`

Or, $1250 = P ×
`(1.03)^(12)`

Or, $1250 = P × 1.425

∴ P =
`(1250)/(1.425)`

I.e P = $877.19

So , Principal = $877.19

Now, Compound Interest = Amount - Principal

= $1250 - $877.19

Or, CI = $372.81

Hence The Principal is $877.19 And Compound Interest is $372.81 Answer