12.Calculate the future value of$4,000 in

a. 55 years at an interest rate of 8% per year.

b. 10 years at an interest rate of 8% per year.

c. 55 years at an interest rate of 16% per year.

d. Why is the amount of interest earned in part

(a) less than half the amount of interest earned in part

(b)?

a. Calculate the future value of $4,000 in 55 years at an interest rate of 8% per year.

The future value of $ 4,000 in 55 years at an interest rate 8% per year is $ . _______

(Round to the nearest dollar.)

b. Calculate the future value of $ 4,000 in 10 years at an interest rate of 8% per year.

The future value of $4,000 in 10 years at an interest rate of 8% per year is $ .___________

(Round to the nearest dollar.)

c. Calculate the future value of 4,000 in 55 years at an interest rate of 16% per year.

The future value of $4,000 in 55 years at an interest rate of 16% per year is $. __________

(Round to the nearest dollar.)

d. Why is the amount of interest earned in part

(a) less than half the amount of interest earned in part (b)?

(Select the best choice below.)

A.The annual interest rate in part (b) is slightly higher than the rate assumed in part (a).

This is because of compounding.

B.

This results because you earn more interest on past interest. As interest is earned on the increasing amount of accumulated interest, the money grows faster as time goes on.

C.

The amount of interest earned in part (a) is really half of the amount of interest earned in part (b) since in part (b) the money grows for twice as many years as in part (a).

D.

The interest earned in part (a) is based on a lower effective annual interest rate.