Question

OS: Exploring Finance Visualizations - Compounding The blue curve depicts the change in the future value of $1 with compound interest Move the sider to change the interest rate and observe how the curve for the future value changes. Drag the vertical cursor in the graph to select different time periods. FVN = PV (1 + 1) = $1(1 +0.050) 10,0 = $1.63 Future Value of $1 Period %Inte5 10 20

Answer 1

Solution :- 1

FV = PV * ( 1 + r )ⁿ

The Future Value of $1 in Period 4 at 5% = $1*(1 + 0.05)⁴ = $1 * 1.22 = $1.22

Therefore Correct answer is (C)

Solution :- 2

FV = PV * ( 1 + r )ⁿ

$1.95 = $1 * ( 1 + 0.10 )ⁿ

(1.1)ⁿ = $1.95

Now Using Log we get n = 7

Therefore the correct answer is (D)

Solution :- 3

Future Value of $1 at 5% after 10 years = $1 * ( 1 + 0.05 )¹⁰ = $1.63

Future Value of $1 at 10% after 10 years = $1 * ( 1 + 0.10 )¹⁰ = $2.59

Therefore answer is (A) that is increases but by less than double