Question

Calculate the future value in five years of $8,000 received today if your investments pay future value a. 5 percent compounded annually $ b. 7 percent compounded annually c. 9 percent compounded annually d. 9 percent compounded semiannually e. 9 percent compounded quarterly.

Answer 1

The Future value is:

a) $10,210.25

b) $11,220.41

c) $12,308.99

d) $18,938.90

e) $44,835.28

What is future value?

The future value (FV) of any asset can be understood as an increase in its value at a fixed rate over a period of time. For a given principal sum P, rate of interest r, and time period t, the future value of an asset can be calculated as:

FV=P*(1+r) ^t

We can find future value as shown below:

P=$8,000

t=5 year

a) r=6%=0.06

FV=8000*(1+0.05) ^5

=8000*(1.0) ^5

=$10,210.25

b) r=7%=0.07

FV=8000*(1+0.07) ^5

=8000*(1.07) ^5

=$11,220.41

c) r=9%=0.09

FV=8000*(1+0.09) ^5

=$12,308.99

d) r=9% compounded semiannually

= 0.09

t=2*5=10

FV=8000*(1+0.09) ^10

=8000*(1.09) ^10

=$18,938.90

e) r=9 percent compounded quarterly

=0.09

t=5*4=20

FV=8000*(1+0.09) ^20

=8000*(1.09) ^20

=$44,835.28

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