Question

(3)

Calculate the future value of $3,000 in

a. 5 years at an interest rate of 5% per year.

b. 10 years at an interest rate of 5% per year.

c. 5 years at an interest rate of 10% per year.

d. Why is the amount of interest earned in part (a​) less than half the amount of interest earned in part

​(b​)?

a. Calculate the future value of $3,000 in 5 years at an interest rate of 5% per year.

The future value of $3,000 in 5 years at an interest rate of 5% per year is $ --------. (Round to the nearest​ dollar.)

Answer 1

Future Value = PV * (1+r)ⁿ

Where r is int rate per month & n is period

A) Future Value = PV * (1+r)ⁿ

= $ 3,000 * (1+0.05)⁵

= $ 3,000 *(1.05)⁵

= $ 3000 * 1.2763

= 3828.90

B) Future Value = PV * (1+r)ⁿ

= $ 3,000 * (1+0.05)¹⁰

= $ 3,000 *(1.05)¹⁰

= $ 3000 * 1.6289

= 4,886.68

B) Future Value = PV * (1+r)ⁿ

= $ 3,000 * (1+0.10)⁵

= $ 3,000 *(1.10)⁵

= $ 3000 * 1.6105

= 4,831.53

D) Due to Compounding effect, in Part B int on Int is calculated .

Int on Int for the forst five years is the reason for this.