Suppose you invest $2,500 in an account bearing interest at the rate of 14% per year. What will the future value of your investment in six years?
compound or simple interest?
To find the future value of an investment, we can use the formula for compound interest:
Future Value = Principal * (1 + Interest Rate)^Time
In this case, the principal (P) is $2,500, the interest rate (R) is 14% per year, and the time (T) is 6 years.
First, we need to convert the interest rate from a percentage to a decimal. We divide the interest rate by 100:
Interest Rate = 14% / 100 = 0.14
Next, we substitute the values into the formula:
Future Value = $2,500 * (1 + 0.14)^6
Now, we can calculate the future value:
Future Value = $2,500 * (1.14)^6
Future Value = $2,500 * 1.973$
Future Value = $4,932.50
So, the future value of your investment in six years will be $4,932.50.