Question

you have $1,500 invested for seven year at 10% per year. Calculate the future vale (FV) of this investment.

Choices:

A. $2,239.08

B. $2,923.08

C. None of these

D. $2,392.08

Answer 1

Solution:           

The formula for calculating the future value of an Investment with compound Interest is

FV = P * [ ( 1 + (r/n) ) ^{n * t} ]

Where

FV = Future value of Investment   ; P =Initial Investment ;   r = rate of interest   ;

n = No. of compounding periods per year ; t = Time in years ;

As per the information given in the question we have

P = $ 1,500   ;   r = 10 % = 0.10 ; n = 1 ( Since compounding is annual ) ;  

t = 7 Years ; FV = $ To find    ;

Applying the above values in the formula we have

= $ 1,500 * ( 1 + ( 0.10 / 1 ) ) ^{1 * 7}

= $ 1,500 * ( 1 + 0.10 ) ⁷

= $ 1,500 * ( 1.10 ) ⁷

= $ 1,500 * 1.948717

= $ 2,923.075650

= $ 2,923.08 ( When rounded off to two decimal places )

Thus the future value of $ 1,500 invested now if the money is deposited for 7 years at an interest rate of 10 % is = $ 2,923.08

The solution is Option B : $ 2,923.08

Note : ( 1.10) ^{( 7 )} = 1.948717 is calculated using the excel function =POWER(Number,Power)

=POWER(1.10,7)