Question

Druscilla Lopez just received $10,755 and plans to invest it for 8 years. The interest rate paid on an 8 year risk-free investment is 0.1. The amount Druscilla expects to have in 8 years is:

Answer 1

Solution:           

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

FV = P * ( 1 + r ) ^t

Where

FV = Future value of Investment   ; P =Initial Investment ;   r = rate of interest   ; t = Time in years   ;

As per the information given in the question we have

P = $ 10,755   ;   r = 0.10 ;   t = 8 Years ; FV = $ To find    ;

Applying the above values in the formula we have

= $ 10,755 * ( 1 + 0.10 )⁸

= $ 10,755 * ( 1.10 ) ⁸

= $ 10,755 * 2.143589

= $ 23,054.297652

Thus the amount Drusicilla expects to have in 8 years is

= future value of $10,755 invested for 8 years at an interest rate of 0.1

= $ 23,054.30 ( When rounded off to two decimal places )

= $ 23,054 ( when rounded off to the nearest dollar )

Note : ( 1.10 ) ⁸ = 2.143589 is calculated using the excel function =POWER(Number,Power)

=POWER(1.10,8)