Ren Levin wishes to determine the future value at the end of 2 years of a $15,000

Question:

René Levin wishes to determine the future value at the end of 2 years of a $15,000 deposit made today into an account paying a nominal annual rate of 12%.

a. Find the future value of René’s deposit, assuming that interest is compounded

(1) Annually,

(2) Quarterly,

(3) Monthly, and

(4) Continuously.

b. Compare your findings in part a, and use them to demonstrate the relationship between compounding frequency and future value.

c. What is the maximum future value obtainable given the $15,000 deposit, the 2-year time period, and the 12% nominal annual rate? Use your findings in part a to explain.

Compounding
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will... Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...