Asked by Giovanni Magana on May 10, 2024
Verified
Suppose you put $475 into a bank account today. Interest is paid annually and the annual interest rate is 4.25 percent. The future value of the $475 after 3 years is
A) $419.24.
B) $441.87.
C) $610.57.
D) $538.17.
Interest Rate
The percentage of a sum of money charged for its use, commonly expressed as an annual percentage rate.
- Master and implement the ideas surrounding present value and observe how changes in interest rates can alter the valuation of future disbursements and influence investment options.
Verified Answer
AT
App's TutorialMay 12, 2024
Final Answer :
D
Explanation :
The future value (FV) of an investment is calculated using the formula FV = PV(1 + r)^n, where PV is the present value, r is the annual interest rate (as a decimal), and n is the number of periods. Here, PV = $475, r = 4.25% or 0.0425, and n = 3 years. Plugging these values into the formula gives FV = $475(1 + 0.0425)^3 = $538.17.
Learning Objectives
- Master and implement the ideas surrounding present value and observe how changes in interest rates can alter the valuation of future disbursements and influence investment options.