Question

Find the future value of each deposit if the account pays ​(a) simple​ interest, and ​(b) interest compounded annually. ​$2800 at 3​% for 5 years ​(a) With simple​ interest, the future value is equal to ​$ ---------. ​(Simplify your answer. Type an integer or a​ decimal.) ​(b) With interest compounded​ annually, the future value is equal to ​$ -----------. ​(Simplify your answer. Type an integer or decimal rounded to the nearest cent as​ needed.)

Answer 1

Part a - Simple Interest

Present value = PV = $2800

Time period = t = 5 years

interest rate = r = 3%

Future value under simple interest is calculated using the formula:

Future Value for simple interest = FVa = PV*(1+rt) = 2800*(1+3%*5) = 2800*(1+15%) = 3220

Part b - Compounded annually

Present value = PV = $2800

Time period = t = 5 years

Interest rate = 3%

Future value under compound interest is calculated using the formula:

Future value for compound interest = FVb = PV*(1+r)t = 2800*(1+3%)5 = 3245.96740804 ~ $3245.97 (Rounded to nearest cent)

The future value of each deposit if the account pays ​(a) simple​ interest and ​(b) interest compounded annually. ​$2800 at 3​% for 5 years ​(a) With simple​ interest, the future value is equal to ​$ 3220. ​(b) With interest compounded​ annually, the future value is equal to ​$ 3245.97