What is the future value of the 10% savings from earnings of $1,470 if it earns 3.5% annual interest,
compounded monthly for 25 years?
Use the compound interest formula to estimate the future value.
A
=
P
(
1
+
r
n
)
n
t
A.
$295.72
B.
$352.19
C.
$419.43
D.
$523.89
First, we need to find the annual savings from earnings, which is 10% of $1,470 or $147. Then we can use the compound interest formula:
A = P(1 + r/n)^nt
Where:
A = future value
P = initial amount (savings from earnings)
r = annual interest rate (3.5%)
n = number of times compounded per year (12 for monthly)
t = number of years (25)
Plugging in the values, we get:
A = $147(1 + 0.035/12)^(12*25)
A = $523.89
Therefore, the future value of the savings from earnings is $523.89. Answer: D.