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Liam Company signed a lease for an offi ce building for a period of 12 years. Under the lease agreement, a security deposit of $9,600 is made. The deposit will be returned at the expiration of the lease with interest compounded at 4% per year. What amount will Liam receive at the time the lease expires?Amount at the time the lease expires ___ $.

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Answer:

Present value (P) = $9,600

Number of years (n) = 12 years

Interest rate (r) = 4% = 0.04

Future value (FV) = ?

FV = P(1 + r)n

FV = $9,600(1 + 0.04)12

FV = $9,600(1.04)12

FV = $9,600 x 1.6010

FV = $15,370

Explanation:

In this case, there is need to compound the security deposit of $9,600 for 12 years at 4% interest rate per annum. The formula for future value of a lump sum(Single investment) is applied.

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