Suppose that you deposit $425 at an interest rate of i = 5%. Using the formula for future value, how much will you have in the bank after 60 periods?

Answer 1

In order to answer this question, we should know what constitutes a "period." Is a period monthly? Quarterly? Yearly? Assuming that each period is a year, then the answer would be 425 * (1.05)^60 = 425 * 18.67919 = $7,938.65. If, on the other hand, a period was defined as monthly. and the % interest rate was the APR (annual percentage rate), then the future value would be: 425 * (1 + .05/12)^60 = 425 * 1283359 = $545.43. The problem, as stated, is incomplete.