Question

Elaine has just received an insurance settlement of $25,000. She wants to save this money until her daughter goes to university. If she can earn an average of 6.5%, compounded annually, how much will she have saved when her daughter enters university eight years from now?

Answer 1

Future value

= Present Value x (1 + r) ^ n

Where,

Present Value = $25,000

r = Rate of interest = 6.5% or 0.065

n = Years of investment = 8

So, Future Value ( Savings )

= $25,000 x (1.065^8)

= $25,000 x 1.654996

= $41,374.9