Question

the future value of $676 received today and deposited 5.85 percent compounded annually for five years is closest to

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 = Principal Investment today   ;   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 = $ 676   ;   r = 5.85 % = 0.0585 ; n = 1 ( Since compounding is annual ) ;  

t = 5 Years ; FV = $ To find    ;

Applying the above values in the formula we have

= $ 676 * ( 1 + ( 0.0585 / 1 ) ) 1 * 5

= $ 676 * ( 1 + ( 0.0585 ) ) 5

= $ 676 * ( 1.0585 ) 5

= $ 676 * 1.328784

= $ 898.257822

Thus the future value of $676 received today and deposited 5.85 percent compounded annually for five years is closest to

= $ 898.2578 ( when rounded off to four decimal places )

= $ 898.26 ( when rounded off to two decimal places )

= $ 898 ( When rounded off to the nearest dollar )

Note : ( 1.0585 ) ( 5 ) = 1.328784 is calculated using the excel function =POWER(Number,Power)

=POWER(1.0585,5)