MBA Math Sample Exercise

Finance: Time Value of Money Future Value with SubAnnual Compounding

Moving well beyond generic GMAT aptitude questions, the MBA Math sample exercises allow prospective MBA students to self assess their proficiency with the quantitative building blocks of the MBA first year curriculum.

MBA focused, time efficient, and convenient, the MBA Math online course builds your quantitative skills. Furthermore, the MBA Math transcript provides a concise summary for admissions officers that you are up to speed.

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Exercise

You deposit $500 in a bank account that pays 7% stated annual interest compounded semi-annually. What is the value of your investment at the end of 4 years?

Solution

Solution Commentary

(3:45)

Variable Assignments

Present Value PV = 500
Rate r = 0.07
Years n = 4
Periods per Year p = 2
Future Value FV = ?

Cash Flow

By convention for charting, Present Values are depicted as negative, reflecting an initial investment outflow in return for future cash inflows.

Manual Solution

FV = PV*(1+(r/p))^np

FV = 500*(1+(0.07/2))^(4*2)

FV = 500*1.035⁸

FV = 658.40

Excel Solution

Financial Calculator Solution

500	[CHS][PV]
0	[PMT]
7	[ENTER]
2	[÷][i]
4	[ENTER]
2	[×][n]
HIT [FV] TO SOLVE…	658.40

Peter Regan teaches decision science courses at Dartmouth’s Tuck School and Duke’s Fuqua School. He also teaches pre-term quantitative skills courses at Tuck and Cornell’s Johnson School. He created the MBA Math self-paced, online pre-MBA quantitative skills course covering finance, accounting, economics, statistics, and spreadsheets.