Classify the finacial problem. Assume a 7% interest rate compounded annually. Find the value of a $ 1,000 certificate in 4 years. a) sinking fund, b) ordinary annuity, c) future value, d) present value e) amortization

I have seen this posted a few times and no one has answered it. I know it is not amortization because that deals with reducing an amount of money like a mortgage. It is not present value because we are looking for an amount of money in the future.

It could be future value, but I am not sure because you aren't making monthly payments. It actually might be an ordinary annuity.

The financial problem can be classified as "future value."

Step 1: Identify the given information:
Principal amount (present value): $1,000
Interest rate: 7%
Compounding period: Annually
Number of years: 4

Step 2: Calculate the future value using the formula for compound interest:

Future Value = Present Value * (1 + Interest Rate)^Number of years

Future Value = $1,000 * (1 + 7%)^4

Step 3: Simplify the calculation:

Future Value = $1,000 * (1 + 0.07)^4

Future Value = $1,000 * (1.07)^4

Future Value ≈ $1,313.74

Therefore, the value of the $1,000 certificate in 4 years would be approximately $1,313.74.

To classify the financial problem and determine the type of calculation needed to find the value of a $1,000 certificate in 4 years, we can analyze the given options.

a) Sinking fund: A sinking fund is a regular savings plan set up to accumulate a specific amount of money by a particular date. It usually involves making regular deposits into an interest-bearing account. Since we are given a present value and asked to find the future value, this financial problem does not involve a sinking fund.

b) Ordinary annuity: An ordinary annuity involves a series of equal cash flows or payments made at regular intervals. The key characteristic of an ordinary annuity is that the payments are made at the end of each period. In this case, we are given a single amount, $1,000, and not a series of equal payments. So, this financial problem does not involve an ordinary annuity.

c) Future value: Future value refers to the value of an investment or sum of money at a specific point in the future. Given that we are trying to find the value of a $1,000 certificate in 4 years, the objective of this problem is to calculate the future value. Therefore, this financial problem can be classified as involving the calculation of future value.

d) Present value: Present value, also known as discounting, involves finding the current value of a future sum of money or investment. Since we are given the present value of $1,000 and asked to find the future value, this financial problem does not involve calculating the present value.

e) Amortization: Amortization pertains to the process of gradually reducing or paying off a loan or debt over a specific period. Since there is no mention of a loan or debt in this financial problem, it does not involve amortization.

In summary, the financial problem of finding the value of a $1,000 certificate in 4 years can be classified as involving the calculation of future value (c). Therefore, we need to calculate the future value using the given interest rate of 7% compounded annually.