The future value of a $500 annual deposit to a savings account after three years is $______, assuming an investment rate of 10% and annual compounding (end of period).
1680
1,820
To find the future value of a $500 annual deposit after three years, assuming an investment rate of 10% and annual compounding, you can use the formula for compound interest:
Future Value = P(1 + r/n)^(n*t)
Where:
P = Principal amount (initial deposit) = $500
r = Annual interest rate = 10% or 0.10
n = Number of compounding periods per year (since it's annual compounding, n = 1)
t = Number of years = 3
Substituting the values into the formula:
Future Value = $500(1 + 0.10/1)^(1*3)
= $500(1.10)^3
To evaluate the calculation, you need to raise 1.10 to the power of 3, then multiply it by $500:
Future Value = $500 * (1.10^3)
Using a calculator or a spreadsheet, you can find that 1.10 raised to the power of 3 equals approximately 1.331:
Future Value = $500 * 1.331
= $665.50
Therefore, the future value of a $500 annual deposit to a savings account after three years, with an investment rate of 10% and annual compounding, is $665.50.