finding present value

Question

Suppose $1,000 is invested at an annual interest rate of 7%. Compute the future value of investment after 10 years if the interest is compounded:

a. Annually

b. Quarterly

c. Monthly

d. Continuously.

Answer 1

Use the compound interest formula.

 

A = P(1 + r/n))^nt

 

where:

A = future value of investment

P = initial investment

r = interest rate (in decimal form)

t = time (in years)

n = number of times compounded per year

 

Given:

P = 1000

r = 0.07

t = 10

 

 

For part a)

 

n = 1

 

 

For part b)

 

n = 4

 

 

For part c)

 

n = 12

 

 

Part d)

 

Use the formula            A = Pe^rt

 

 

Then solve for A for each part.