Fin/370 compute the future value in 9years of a $2000 deposit in 1 year and another $1500 at the end of year 3 using a 10% interest rate
To compute the future value of the deposit, we can use the formula for future value of multiple cash flows:
FV = PV(1 + r)^n
Where:
FV = Future Value
PV = Present Value (the amount of the deposit)
r = Interest rate (expressed as a decimal)
n = Number of years
In this case, we have two separate cash flows: a $2000 deposit at the end of year 1, and a $1500 deposit at the end of year 3. We need to calculate the future value of both and add them together.
First, let's calculate the future value of the $2000 deposit at the end of year 1. Since it is only 1 year away, we don't need to compound any interest. Therefore, the future value of this deposit can be calculated simply as:
FV1 = PV1 = $2000
Next, let's calculate the future value of the $1500 deposit at the end of year 3. We need to compound the interest for 9 - 3 = 6 years. Using the formula mentioned earlier:
FV2 = PV2(1 + r)^n = $1500(1 + 0.10)^6
Now, we can calculate the future value of the total deposit by adding the future values of the two cash flows:
FV_total = FV1 + FV2 = $2000 + ($1500(1 + 0.10)^6)
Calculating the equation will give us the future value of the total deposit after 9 years.