Vanguard Manufacturing sets aside $850,000 from retained earnings into a corporate savings account earning 6.75% annually, compounded quarterly. The company plans to hold this fund for 8 years to finance a future plant expansion. Calculate the future value of this investment and determine the total interest earned over the 8-year period.
Correct Answers
future_value
$1,452,048.67
interest_earned
$602,048.67
Step-by-Step Solution
Compound Interest Formula: FV = P × (1 + r/m)^(m×t) Principal (P): $850,000.00 Annual Rate: 6.75% Compounding: quarterly (m = 4) Total periods (n): 32 Rate per period (r/m): 1.6875% FV = $850,000.00 × (1 + 1.6875%)^32 FV = $850,000.00 × 1.708293 FV = $1,452,048.67 Interest Earned = FV − Principal = $1,452,048.67 − $850,000.00 = $602,048.67