Question

Use the future value formula or a FV table for each of the specified scenarios.
A. Calculate the future value (FV 1 ) of $30,000 deposited in an account today and left there for
one year. Assume that the account pays 5 percent simple interest annually.
B. Calculate the future value (FV 2 ) of $30,000 deposited in an account today and left there for
four years. Assume that the account pays 5 percent compound interest annually.

Answer 1

Question 1

Simple interest = Principal * rate% * Time

Simple Interest = $30,000 * 5% * 1 = $1,500

Hence, FV = $30,000 + $1,500 = $31,500

Question 2

FV = PV * (1 + r)ⁿ

FV = $30000 * (1 + 5%)⁴

FV = $30000 * 1.2155

FV = $36,465.19