Question

P5-3 Future value You have $100 to invest. If you put the money into an account earning 5% interest compounded annually, how much money will you have in 10 years? How much money will you have in 10 years if the account pays 5% simple interest?

Answer 1

Answer to Question No. P5-3.
Compound Interest:
Amount Invested (Present Value) = $100
Rate (r ) = 5%
Time (n ) = 10 years
Future Value = ??

Future Value = Present Value * (1 + r) ^ n
Future Value = $100 * (1 + 0.05)^ 10
Future Value = $100 * 1.05^ 10
Future Value = $100 * 1.6289
Future Value = $162.89

I will have $162.89 at the end of 10 years

Simple Interest:
Amount Invested (Principal) = $100
Rate (r ) = 5%
Time (n ) = 10 years
Future Value = ??

Interest = Principal * Rate * Time
Interest = $100 * 5% * 10
Interest = $50

Future Value = Principal + Interest
Future Value = $100 + $50
Future Value = $150

I will have $150 at the end of 10 years