Question

Bob deposit $1,000 dollars into a savings account, what interest would you need to be

earning to have $1,600 dollars in the same account 4 years later?

Bob deposit $1,000 dollars into a savings account that pays 5% interest annually, how much

will be in his account after 5 years?

Answer 1

Answer to Question 1:

Present Value = $1,000
Future Value = $1,600
Time Period = 4 years

Present Value * (1 + Interest Rate)^Time Period = Future Value
$1,000 * (1 + Interest Rate)^4 = $1,600
(1 + Interest Rate)^4 = 1.60
1 + Interest Rate = 1.1247
Interest Rate = 0.1247 or 12.47%

Answer to Question 2:

Present Value = $1,000
Interest Rate = 5.00%
Time Period = 5 years

Future Value = Present Value * (1 + Interest Rate)^Time Period
Future Value = $1,000 * 1.05^5
Future Value = $1,000 * 1.27628
Future Value = $1,276.28