Question

You are hoping to buy a house in the future and recently received an inheritance of ​$20,000.You intend to use your inheritance as a down payment on your house.

a.  If you put your inheritance in an account that earns 7 percent interest compounded​ annually, how many years will it be before your inheritance grows to ​$30,000​?

b.  If you let your money grow for 10.25 years at 7 percent​, how much will you​ have?

c.  How long will it take your money to grow to ​$30,000 if you move it into an account that pays 3 percent compounded​ annually? How long will it take your money to grow to ​$30,000 if you move it into an account that pays 11 percent​? d.  What does all this tell you about the relationship among interest​ rates, time, and future​ sums

Answer 1

a-c)

d)

From the above it is clear that with increase in either of interest rates or times, the future values also increase.

In other words, it would require less time to reach the future value if interest rates are higher and vice versa.

Formulae