Present ValueFuture Value problenms 1 Suppose you put 500 in

Present Value/Future Value problenms 1. Suppose you put $500 in your savings account and earn 4% interest per year. How much will you have in your account after two years? 2. If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much will you have in the account at the end of three years? 3. At an interest rate of 6%, how much will need to invest today to have $10,000 in 5 years? (note: you are solving for the present value here 4. You will receive $14,400 in 2 years, and the market interest rate is 3 percent. What is the present value?

Solution

Answer : 1) Given, PV ( Present Value ) = $500

Rate of interest (r) = 4% ; Time (t) = 2 years.

The formula of future value (FV) is

FV = PV ( 1 + r/100 )^t

=> FV = 500 ( 1 + 4/100 )² = 500 ( 1.04 )² = 540.8

Therefore, after 2 years the amount of saving account becomes $540.8