1. Find the compound amount for the following deposits $470 at 8% compounded semi-annually for 12 years .
2. How does the priority of different security holders in bankruptcy liquidation affect the required rate of return on different securities. In other words, why do bond investors have lower required rates of return than do stock investors?
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(1) Find the compound amount for the following deposits $470 at 8% compounded semi-annually for 12 years.
Take note that compound amount refers to the accumulated amount after the given number of years.So to solve, apply the formula for accumulated amount of compounding interest.
A is the accumulated amount after t years
P is the principal amount
r is the rate
n is the number of compounding periods in a year, and
t is the number of years
Then, plug-in P=470, r=0.08 and t=12. Also, since the rate is compunded semi-annually, plug-in n=2.
Hence, the compounded amount is $1204.75 .
The formula you use for compound problems is A = P(1 + r/n)^(n * t)
A would be what you are solving for. P is the principal or the starting amount, which in this case would be $470. R stands for rate or the percentage, which is 8% (written as a decimal this is .08). n stands for the number of compounds per year. In this problem it says the amount is compounded semi-annually which makes n = 2. Finally t stands for time in years which is 12.
With all the numbers plugged in, your formula is A = 470(1 + .08/2)^(2 * 12). Make sure you follow order of operations and your final answer is A = 1,204.75
Sorry, but I have no clue about the second question. I hope you find your answer :)
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